What To Trade

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WHAT TO TRADE

About 70-80% of the effort in making money in the stock market is in determining whether "the market" is "trending" up or down. In MIPS terminology. Bby "the market", we mean the S&P 500 Index (which accounts for about 85% of the money in the New York stock exchange). With a Buy-and-Hold straegy, almost everyone makes money in up markets and they lose between 40-70% in down markets. For example, the SPY was down about -55% in the 2008 market crash, and the QQQ was down bout -75%.

The MIPS models determine "the market trend" for us with an accuracy between 65-70%. In addition, the gains from MIPS's winning trades are about 3 times bigger than the losses from losing trades.

Viable Trading Strategies Include:
MIPS works well trading the S&P 500 ETF (SPY) and most stocks or indices' ETFs that "correlates" well with the SPY (like the QQQ). Most mid-cap and large-cap US indices are well-correlated to the SPY (like the Nasdaq 100, etc). In general, even though other indices track well with the SPY, their "volatility" is higher than that of the SPY (goes higher than the SPY in up markets and goes lower in down markets). Of course, this is great on MIPS's winning calls, but it is not good on losing calls.
o See defination of "Correlates" at => http://www.investopedia.com/terms/c/correlation.asp

TRADING STRATEGIES

No Leverage

For investors with very low "risk tolerance", we recommend that you trade MIPS signals using the S&P 500 Index (SPY)
For the moderate investor, we recommend investing your money in the S&P500 (SPY) and the NASDAQ (QQQ). If you simply invest one-half of your investment money in SPY and the rest in QQQ and short the same way, you will be invested 1.0x on Long signals and 1.0x on Shorts - No Leverage !!!

LEVERAGE
So, what do we buy to generage leverage?
On Long Signals (up to 1.5x leverage allowed)
- you get 1.5x leverage in your S&P500 money by buying 1/2 of it in SPY and the other 1/2 in SSO, and
- you get 1.5x leverage in your NASDAQ money by buying 1/2 of it in QQQ and the other 1/2 in QLD
On Short Signals (up to 1.0x leverage allowed)
- for 1.0x leverage, you short 1/2 of your money in SPY (or buy inverse SH) and short the other 1/2 in QQQ (or buy in inverse PSQ)
- for less risk with 1.0x leverage, you can short 100% of your money in SPY (or buy inverse SH), and none in short QQQ or PSQ
- for 0.5x leverage, you short 1/4 of your money in SPY (or buy inverse SH) and short the other 1/4 in QQQ (or buy in inverse PSQ)
Click here for a full definiton of "Shorting" or "Going Short"

SUMMARY

***** Fractions (like 1/4) mean the fraction or %'s of your total invested money (e.g., 1/4 means 25%) *****

****** Tip: Instead of shorting SPY and QQQ, you could cut some risk by just shorting all in SPY ******

SAMPLE:

MIPS3.org
Trading SPY or QQQ or IWM since 2007 (single leverage)

OTHER POPULAR TRADING PROFILES

I.) A popular trading profile by MIPS Members (and myself) is to trade the S&P 500 with 1.5x leverage on Long
    signals and 0.5x leverage on Short signals.
        The simplist way to accounplishe this is:
     (a) on Long signals trade 50% of your investment money in the singe leverage SPY (S&P500 ETF) and
             the other 50% in the double leverage SSO, and
        (b) on short signals short 50% of your investment money by buying the single leverage inverse ETF SH
             with the other 50% in cash.
or,

II.) On Long signals one could trade (50%SPY+50% QQQ) and on Short Signals trade (50% SH+50%PSQ)