Why is that so many BS articles

like this
http://www.ivillage.com/401k-how-actively-should-you-manage-it/7-a-219565

and not that much information on what it really takes to manage large amount that has been being saved for many years, sometimes three-four decades.

"The good news is that although you shouldn't ignore the account altogether, an annual checkup is really all you need. At that time, check that your investments are diversified according to your needs and goals. Diversification is the key to successful investment management".

Yea, right. One checks his account on December 31 of 2007, slightly adjust his allocation and happily celebrate New Year leaving his account alone until the next checkup at the end of 2008. Give me a break.

Interview with Welles Wilder

One of the reasons I want to mention this interview here is to draw your attention to what the author of the system we follow here (with a very slight modification) had to say about it:

"I think the Volatility System is the best, but most overlooked system in the New Concepts Book. In 1993, Futures Magazine did a study on trading systems, and declared then that the Volatility System was the best system up to that time".

Here is a link to the interview.

I do understand that this is not the best system available today, yet it is powerful enough and at the same time simple enough to become my prime candidate as a tool for managing 401K.

Buy signal on S&P

We did get a buy signal. That's been expected - see my previous post. Though it is a surprise for many including myself we have to execute. Yes, we may lose money as market seems to be overbought and due for a pullback, yet the worst thing to do would be trying to outguess the system. Rules are rules. We have to buy and be prepared to accept a loss if that is what we will end up with. Here is a chart.

Heads up on S&P

If SPY manages to close above 113.51 we will have to go long. Here is a chart (click to enlarge):

Note that the indicator is drawn with our "standard" parameters (2,7) and not with "optimum" parameters. I still have not came up with an optimization algorithm that I'd like. Working on that. All I can say is that it will  make our stops wider like on the chart below:

An article from wikiHow

Though a "recipe" this article provides is quite vague and even naive to some extent, the idea of being in equities when they move up and staying in stable value options (money market) when they go down is what we preach, research and implement.

I am planning to return to this article and show that the approach suggested is better than doing nothing and that the ATR stop based system we follow is better.

Here is a link: How to Manage Your 401k Investments and Choose Your Funds

Back-testing and optimization

All investment plans, methods, systems and parameters of those systems need to be constantly evaluated and adjusted.

Ideally, evaluating of a system would include all of the following steps:

1. Back-testing (using in sample and out of sample historical data)

2. Paper trading (forward testing)

3. Live trading

Today I am reporting some results of back-testing I've done. Here is what my favorite source of definitions - Wikipedia - says: "Backtesting (or back-testing) is the process of evaluating a strategy, theory, or model by applying it to historical data. Backtesting can be used in ... studying how a trading method would have performed in past stock markets".


There are many articles on the Internet on back testing. Here is one recent that talks on common mistakes in back-testing How to Backtest Your Trading Strategy Correctly

Up until now I have been visually back testing the system using historical charts some of which I published. I have been mostly using 7 week period and 2 as a multiplier for our ATR-based entry and exits. These parameters work well for most securities and on most time frames from monthly all the way to intra-day.

Vacation time

I'll be on vacation next week. I expect to update the signals on September 17.

We are staying in cash and bonds still despite this rally. I'll update the table and charts this coming long weekend.

Happy Holiday everyone!