MIPS provides its Subscribers very straight forward direction as to whether you should be invested in the market (Long), or out the market (Cash), or betting against the market (Short). As a MIPS member you should follow the MIPS signals as issued.
But that is not the complete story
At one time in the past, we reported how close we thought MIPS was to a signal change by what % of MIPS indicators were Long and what % were short. But, that was misused. Using this, many of our Members tried to jump a few days ahead of the actual MIPS signals whenever they thought
it was a good time to be Long or Short. But, of course, most of the time the market elects to change direction on its own; or its direction it is stopped by a support or resistance level, and it reverses itself quickly. So, we were forced to stop providing that kind of info because it was basically tempting our clients into trying to get ahead of the next signal; and of course, they failed.
But there is one investment strategy that MIPS (and to my knowledge, no other retail timing model) never
attempts to manage, and that is your "Risk Management"
. In order to know how to manage your risk, one would need to know your personal "Risk Tolerance", and of course, we do not know it. Risk Tolerance could be as simple as how large of a loss of capital that you can tolerate without panicking. Even though MIPS is programmed a little more for "Preservation of Capital" than for "Shooting for the Moon" in performance, good Risk Management is not possible without knowing the risk tolerance of each subscriber. That is not possible in my business. Some professional money managers or RIAs (that require a minimum investment amount of $200,000-300,000 along with fees somewhere between 1.5% - 2.5% per year), may spend some personal time with you and may try to design a portfolio to meet your personal risk tolerance, but many of them fail to meet that goal.
My point is that, if you are going to manage your money yourself with trade signals from models developers like MIPS, you will need to help yourself a little with a few things that are easy and entirely under your control. The two that come to mind are:
(A) you decide what Index you will trade, and
(B) you decide what % of your money you want to be invested in stocks at any and all times.
A) MIPS is designed to work well trading the S&P 500 (SPY, IVV, VOO); mainly tech stocks (QQQ, ONEQ); the Dow (DIA); and mid-caps (IWM).
Under normal conditions, I trade SPY;
- when the market is moving up somewhat steadily (like 2017), I trade QQQ;
- or in-between these top two, I may trade 50% SPY and 50% QQQ;
- and, when I feel that I need more safety, I trade DIA
I may leverage on Long Signals up to 1.5x, but I never leverage on Short signals
- if you are not sure what to trade, trade the SPY (with no leverage)
B) Under somewhat normal conditions, I invest 100% of my investment money in equities (stocks). In highly volatile markets (like Feb and March 2020), I may only trade
with 70% of my money in equities and 30% in cash, And, at this time, with high uncertainty in the election, I am 50% in equities and 50% in Cash (until after the election).
- in other words, at this time I am willing to give up some performance on the upside to protect my money on the downside
- on the other side, some of my best friends and clients are fully invested
- the bottom line is that there is no right of wrong across the board, as it is all about how well you allocate your participation in the market to your personal risk tolerance.
So, you should use MIPS signals, but you need to help manage your own "Investment Risk"
- should not be difficult, manly common sense.
EVEN THOUGH THE ABOVE COULD OFFER YOU MORE CONTROL OF YOUR INVESTMENT AND MORE PEACE OF MIND, YOU REALLY DO NOT NEED TO DO ALL OF IT.
All of the MIPS models are still Long. They are very close to a signal change (Cash or Short), but this could change in single day.
Also, the models are very close to a "Stop Loss Trade"; but that can also melt away like snow in hell.
That is why we need to wait for the exact signal from MIPS.
Happy Trading !!!
Paul Distefano, PhD
Founder / Lead Developer
MIPS Timing Systems, LLC