If this looks a lot like the Lazy Man metrics dashboard, that’s because it is. What I’m trying to do is determine which of my target ETFs display the greatest momentum, strength of trend and relative strength. I’ve built all the metrics in Worden Bros. Telechart 2011, the mothership of FreeStockCharts. I can do more programming in TC2011 in order to create indicators unique to my requirements but, truth be told, you can get the job done pretty well with the FSC default indicators. Keeping up with the Mosaic theme…we’re not looking for a single leader.
This is a follow the pack strategy and we use the strength and momentum of our focus ETFs to confirm the trend. BUT WAIT…didn’t I say this was non-directional? I was waiting for you to ask that and you’re absolutely correct. This leads us back to the concept of Mosaic as a blend of inversely correlated ETFs. Inversely correlated, but highly correlated inversely…and that is one of the edges Mosaic provides. Another feature of Mosaic is that is just doesn’t trade pairs, but rather a kind of soup of ETFs, typically numbering 4,5 or 6 and in different position sizes (all in 100 share increments for option contract purposes). If you held 6 ETFs in your account and knew that the daily balance of your account would never be more than a few dollars different every day over a 5 year period…how would you make money with that tool in hand?
Let us consider the possibilities. Assume these ETFs were all highly capitalized, had robust open interest, dollar increment strikes and .02-.05 spreads in their options. How could you trade and fade daily volatility to make a few bucks? Some opportunities are explored in next week’s post. I hope the idea of Mosaic piques your interest…we’ll be running a little contest at the end of the month for creative ways to trade the Mosaic flat equity line…the best idea will receive bragging rights and a copy of AGAINST THE GODS – The Remarkable Story of Risk.
Excellent BZB.
How would that work?
Jurgen,
You’re a man of few words. Assume ref to contest. Details will follow in the next 2 weeks. The idea was to make the Mosaic project more interactive by integrating reader input. These ideas may also reveal the strengths and weaknesses of the Mosaic approach (and others). Many traders prefer to sit back and let others make investment decisions for them. My goal has always been to get traders to think for themselves and to understand how and why they are trading as well as how they can better realize their trading goals. While I don’t expect anyone to submit a “Holy Grail” trading strategy I can as least provide a forum and format to explore the possibilities for successful trading.