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Tango5 Investing Method by Don Wilson May 10, 2007 PowerPoint available at www.donsfunds.com “Tonight I Will Show You” What the level of risk is in the market today – any day. Should I be “In or Out” Top 1\% of 3000 + No Load Mutual Funds - any day Make “good money” year in and year out.

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tonight i will show you
“Tonight I Will Show You”
  • What the level of risk is in the market today – any day. Should I be “In or Out”
  • Top 1% of 3000 + No Load Mutual Funds

- any day

  • Make “good money” year in and year out.
  • Only if you follow the rules.
my background
My Background
  • Let’s take a journey.
  • Mechanical Engineer – technical guy
  • Small business owner last 30yrs
  • Cashed Out in 1987
  • Started investing with Fundamental Analysis
  • Now mechanical trader using Technical Analysis
  • Since 1997 been investing the Tango5 way
origin of tango5
Origin of Tango5
  • To teach my adult children how to invest
  • Expanded to family & some close friends
  • Expanded to Web Site & several 100 users
  • All the users I know of are profitable
  • Tango5 has been running “real time” for four years
  • Uses FastTrack and Amibroker Softwareand “freeware” Trade and Tradefr
slide6
My Concern – Risk of Deep Bear Markets

Market Timing is really “Risk Management”

tango5 at www donsfunds com
Tango5at www.donsfunds.com
  • A fully developed and documented trading system
    • When to buy
    • What to buy
    • How to manage your holdings
    • When to sell
    • How to manage your money
    • How to track your trading history
    • The software “pre-packaged” to run the system
tango5 is also
Tango5 Is Also
  • “Semi Automated” to save time
  • Almost “Turnkey” investment process
  • Almost “Autopilot” in use
  • A heavy “dose” of my investment philosophy
  • Novice Investor - Like driving your car ----Start the motorPut it in gearSteer and Brake
  • Expert Investor – Just use it.
tango5 is also10
Tango5 Is Also
  • A Teaching Tool
  • Graphs and Indicators Displayed
  • Fund Ranking and Selection Displayed
  • Money Management Reports Displayed
and it is free
“And It Is Free”
  • Caveats:
  • Must have high level of computer skills or know someone that can help you.
  • Considerable set up detail.
  • It takes your time and effort.
market timing
Market Timing
  • My experience with “Market Timing Models” since 1994
  • Why? Keeps you out of “Deep” Trouble
  • Timing is “Risk Control” not for Performance
  • Tango5 is not a “Black Box”, totally open
  • Tango5 MRI (market timing) is all you need
  • MRI “Managed Risk Investing”
how does it perform tango5 back test example
How Does it Perform Tango5 Back Test Example
  • Backtest Results from the Amibroker Custom Backtester.
  • All FT data, 15 years of history.
  • High Risk Portfolio22.72 ann, 13.56 mdd, win rate 73%, holding 4 positions, 8% trailing stop
  • Mid Risk Portfolio 19.77 ann, 10.87 mdd, win rate 68%, holding 4 positions, 6% trailing stop
  • Low Risk Portfolio 16.49 ann, 7.43 mdd, win rate 64%, holding 4 positions, 3% trailing stop

*Note Back testing is a simulation of the past. It is imperfect“Back testing is an approximation of what might happen in the future”

backtest example tango5 bear market years
Statistics | Charts | Trades | Formula | Settings | SymbolsBacktest Example Tango5Bear Market Years
  • Backtest Results from the Amibroker Custom Backtester
  • Getting “in & out of the market” at exactly the wrong time
  • FT data starting 03/21/2000 – 10/07/2002, 2 1/2 years bear market
  • High Risk 9.76 ann, 8.30 mdd, win rate 80%, holding 4 positions
  • Mid Risk 11.29 ann, 6.77 mdd, win rate 75%, holding 4 positions
  • Low Risk 10.53 ann, 3.21 mdd, win rate 70%, holding 4 positions
who is tango5 for
Who Is Tango5 For ?

Investment Level Beginners ?

Investment Level Average ?

Investment Level Advanced ?

It can be for all levels

what do you need to be successful
What Do You Need to be Successful
  • Control of Market Risk
  • What to Buy, Fund Selection
  • How to Manage Your Portfolio
secular bull bear markets since 1802 range 8 to 20 years
Secular Bull & Bear Marketssince 1802 ---------- Range 8 to 20 years

There is a definite pattern here! What causes these cycles?

FEAR and GREED, yes but that is to simple.

Michael Alexander, Andy Kessler, and Ed Esterling’s research shows that

“Innovation Waves” especially since the “Industrial Revolution” have the effect of

of creating long cycles in financial markets.

slide19
Another Illustration of the Cycling of Valuation Corresponding to

Secular Bull and Bear Markets for the last 100 years

slide20
Copyright 2006, Crestmont Research (www.CrestmontResearch.com)

1.00

10.00

100.00

1,000.00

10,000.00

100,000.00

1910901091109210931094109510961097109810991190119111921193119411951196119711981199129012911292129312941295129612971298129913901911392139313941395139613971398139914901491149214931494149514961497149814991590159115921593159415951596159715981599169016911692193169416951696169716981699179017911792179317941795179617971798179918901891189218931894189518961897189818991990199119921993199419519961997199829092000200120022003200405

0

15

30

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

SECULAR STOCK MARKETS EXPLAINED

Dow Jones Industrial Average: 1900-2005

P/E Ratio (trailing)

Secular stock market cycles are driven by trends in the price/earnings ratio (P/E)

Secular bull markets start after the trough of below-average P/Es

Secular bears start after the peak of above-average P/Es

+2% +317% -80% 200% -38% +774% -10% +1214% ???%

Despite market declines in the 2000s, P/Es remain above average and

trending lower − the potential sign of a current secular bear market

1,000

100

10,000

Copyright 2006, Crestmont Research (www.CrestmontResearch.com)

1.00

10.00

100.00

1,000.00

10,000.00

100,000.00

1910901091109210931094109510961097109810991190119111921193119411951196119711981199129012911292129312941295129612971298129913901911392139313941395139613971398139914901491149214931494149514961497149814991590159115921593159415951596159715981599169016911692193169416951696169716981699179017911792179317941795179617971798179918901891189218931894189518961897189818991990199119921993199419519961997199829092000200120022003200405

0

15

30

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

SECULAR STOCK MARKETS EXPLAINED

Dow Jones Industrial Average: 1900-2005

P/E Ratio (trailing)

Secular stock market cycles are driven by trends in the price/earnings ratio (P/E)

Secular bull markets start after the trough of below-average P/Es

Secular bears start after the peak of above-average P/Es

+2% +317% -80% 200% -38% +774% -10% +1214% ???%

Despite market declines in the 2000s, P/Es remain above average and

trending lower − the potential sign of a current secular bear market

1,000

100

10,000

slide23
Intermediate Term Cycle --- Weeks to Months

Indicated by OTC New High/Low Summation

NASDQ(OTC) Composite

NASDQ 52 week High/Low Oscillator

slide24
Market Timing Components for Tango5 Explained

1. Rutvol uses Price-R2000, Total Volume NASDQ

2, Tango5 Summary:

Dominant Market Relative Strength of NASDQ vs NYSE

Uses Data from Dominant Market NASDQ or NYSE for:

Market Environment 30yr Bond, Price Osc., McClelland Summation

Price Risk Factor Two Oscillators

Advance / Decline Risk Factor Two Oscillators

Hi / Low (52 week) Risk Factor One Oscillator

Rutvol PlusTango Summary = Tango5 Intermediate Timing

slide25
Rutvol PlusTango Summary = Tango5 Intermediate Timing

The RUTVOL test has passed. Further analysis is needed.

Data by www.FastTrack.Net

The Total for 09/01/06 is 4 or above. We should be invested in the market.

Handle investments in accordance with

Tango5 Fund Management When Tango5 is indicating BUY.

ranking explained
Ranking Explained

RSI/Stochastic = RSI / 2 + Stochastic / 2

NCAlpha = Alpha without the correlation component

Ulcer Index = the negative portion of Standard Deviation

Ranking = RSI/Stochastic + NCAlpha – Ulcer Index

Absolute numbers are then weighted for Rank calculation

slide28
Note this table repeated

For Mid & Low Risk

slide29
Note this table repeated

For Mid & Low Risk

slide36
Ann 18.96 MDD 8.83 Win % 72.18 PayRatio 3.46

tamrankDW, 6% trailing stop

Starting equity 50K, 09/20/89 to 06/16/05

slide37
tamrankDW, 6% trailing stop

Starting equity 50K, 09/15/02 to 06/16/05

slide40
Tango5 Sample Portfolio Equity Chart

vs. S&P 500 Composite

Tango5 Sample Portfolio (black)

that s the output file package
That’s the Output File Package
  • Market timing – MRI (Managed Risk Investing)
  • Fund Screening & Ranking
  • Fund Holdings Management
  • Portfolio Management
back testing tango5
Back Testing Tango5

A more extensive look at results

investing s two major forces
Investing’s Two Major Forces
  • 1. Method ---- solution --- Tango5
  • 2. Emotion --- solution -- Discipline(Tango5)Refer to “Mean Markets & Lizard Brains” by Terry Burnham

and “Predicting the Markets of Tomorrow” by James P O’Shaughnessyand “The (MIS) Behavior of Markets by Benoit Mandelbrot & Richard L Hudson

wrap up risk when investing
Wrap up - Risk When Investing
  • You can’t control the “Market Action”
  • You can control “RISK”
  • Tango5 strongly oriented towards controlling “RISK”:from Market Timingfrom Fund Risk Levelsfrom Fund Selectionfrom Buy – Sell Rules
  • It’s all about controlling “RISK”
  • Tango5 puts the odds on “YOUR SIDE”------- If you “follow the rules”
tangoetf
TangoETF
  • New Fee ($299,95) Service
  • Trades only ETF’s
  • Proprietary not open system
  • All automated mechanical trading platform
  • You get email Daily Update
  • No data download or programs to run
  • Backtest approximate 20% annualized return over last 5 years
slide50

===================

Portfolio ETPortmod

===================

Positions on 04/02/07:

Fund Shares Value % 1Day

---- ------ ----- ------

FDRXX 60000.00 60000.00 0.04

----- ----- ------

Total 60000.00 0.00

Positions on 05/04/07:

Fund Shares Value % 1Day

---- ------ ----- ------

FDRXX 735.13 735.13 0.01

EWN 700.00 21770.00 0.68

EPP 140.00 20118.00 0.54

EWA 750.00 20895.00 1.02

----- ----- ------

Total 63518.13 0.74

reference listing
Reference Listing
  • www.donsfunds.com
  • “Mean Markets & Lizard Brains” by Terry Burnham
  • “Stock Cycles by Michael A. Alexander
  • “How We Got Here” by Andy Kessler
  • “Unexpected Returns – Understanding Secular Stock Market Cycles” by Ed Esterling
  • “The (MIS) Behavior of Markets by Benoit Mandelbrot & Richard L. Hudson
  • “Predicting the Markets of Tomorrow” by James P O’Shaughnessy
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