Cycle Trading

[Duma]

About a week ago I scrapped the Sector Rebalance Trading plan that I had used all year in my medium sized account. It managed to beat the SPY by a few % which is what I wanted, but the number of trades was just killing me. I am up to over 100 ytd. Just too much work.

I have replaced it, still using daily charts, with a simple plan of trading each of the big 3 at 50% each. This will allow for 150% investment when all 3 indexes are long as they are now.

I chose this method for a couple of reasons:

1. I am not smart enough to know which index is going to be the best, so I am just playing the average of the 3. IWM has been very weak of late, but look what it has done in the last 5 days. I knew the market was turning, but who knew small caps were going to be so strong. If I had stayed with the sector trading I would lost a lot to the big 3 since SPY is now the weakest of the 3.

2. I now fully believe that investing at something over 100% is necessary to beat B&H in a good market. Whips hurt performance and real large dips only come every year or so. Without any way of telling which next 5% dip will turn into a 20% dip, I have to take each dip seriously, even when I lose a bit when I reenter the trade. By trading up to 150%, that covers a lot of sins. If trading at 160% is good for Buffett, then it is good for me also since money is free. Current rate at IB is 2.66% or .22% a month. So every extra $10,000 has to earn an extra $22 a month. That is not even noise level it is so small.

So the average of the big 3 for the last 5 days has been 2.1% times 1.5 for an gain of 3.1%. I'm happy.