Quote Originally Posted by slgerritz View Post
Thanks Paul. I feel like I'm on a role now, so maybe I can get away with one more question for now.

The 20 DMF chart has given a short signal. It uses the S&P 500 as part of the graph. Do I use this chart to either buy,cover or short the the S&P 500 (broad market) or can I assume it should be viewed as factor when trading the leader list? I will save my upcoming ETF questions for latter.
Thank ahead of time.
Steve
Steve,

You may review the 20 DMF methodology. The 20 DMF is not computed with the 500 components of S&P 500, but with over 1,000 stocks from all sectors. The 20 DMF signal is not derived proportionally to the signals from all stocks, but is proportional to the signals from all sectors. Hence, the S&P 500 chart is shown as a reference only for the behavior of large (institutional) cap stocks in relation with the 20 DMF, but the 20 DMF is a much more general market signal. When it is in short mode like now, it tells you to favor short setups over long setups for most instruments and stocks. It tells you a lot about timing, but nothing about the setups and their risks.

What the IWM robot does with a 20 DMF short signal is to automatically look for entering a short position but only with an optimal setup for risk management and with the best statistically expected returns. The optimal entry price is always based on a 3:1 reward-risk ratio from the multi-pivot method. On average, this 3:1 RR method returns 0% risk-adjusted returns in a trendless market. But when a trend bias is identified by the 20 DMF and/or the satistics and we use the same 3:1 reward-risk entry setups, we can achieve the exceptional risk-adjusted returns described in the introductory robot paper.
Paul answered perfectly all your other questions. Thank you Paul!
Billy