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Frequently Asked Questions
We have posted the most frequently asked questions "FAQs" from our members. If you have a question, please scan through our list. You may find other questions that you may not have thought about. If you are not clear about an answer or your question is not on the list, we invite your response and additional questions. Thanks!
We have grouped our questions / answers into 4 categories for conveniency:
General Information
What are ETFs?
The American Stock Exchange lists Exchange Traded Funds (ETFs) on a number of broad-based indexes – each designed to provide a single value for the aggregate performance of a number of companies representing a broad group of industry and market sectors. Investors can buy or sell (i.e., trade just like stocks) any of the broad-market or benchmark indexes (ETFs). The most popular ETFs arevDIA, SPY, and QQQ.
Can you tell me more about buying and and selling ETFs?
ETFs can be flexible and easy to trade. Investors buy and sell them like shares, through a broker. Using ETFs, investors can also employ traditional share trading techniques, including stop orders, limit orders and margin purchases (if available).
What is the difference between fundamental and technical analysis?
Fundamental analysis endeavours to predict the overall direction of the share market by focusing on the economic outlook, sentiment surveys, individual industry circumstances and political events. Those who monitor ‘fundamentals’ hope to predict the next change in market direction before that change is reflected in share prices.
Technical analysis focuses on analysis of daily share price action. There are essentially two forms of technical analysis however. One form is based on the belief that it is possible to ‘read’ chart formations to predict market direction. Those who use this predictive approach to technical analysis embrace pattern recognition systems based on Fibonacci waves, Dow Theory, Elliott waves, head and shoulder, neckline, double and triple top, wedge, triangle and other formations.
Regarding the Wash Sale Rule, is this still true that selling one exchange-traded index security at a loss and buying another within 30 days will NOT trigger the wash sale rule? And if so, do you know the rationale for this exception to the wash sale rule requirement?
Selling one exchange-traded fund at a loss and buying another exchange-traded fund within 31 days will not trigger the wash sale rule, provided they're different exchange-traded funds. Selling 100 shares of the QQQ, which tracks the Nasdaq 100 index, at a loss and then repurchasing another 100 shares of the QQQ within 30 days will trigger the wash sale rule, meaning the loss would be disallowed. (You can adjust the basis in the new shares to reflect the loss, though, effectively letting you claim it when you sell the replacement batch.)
As to your second question: It's not so much a "rationale" as it is a lack of formal opinion on the part of the Internal Revenue Service. The wash sale rule disallows the loss when "substantially identical" securities are purchased within 31 days of when the loss was incurred. (That means you can't buy new shares 30 days before you sell the stock, either.) Since the IRS has never issued a concrete definition of "substantially identical," many tax planners argue that selling a Vanguard S&P 500 index fund at a loss and purchasing a Fidelity S&P 500 index fund within 31 days will not violate the wash sale rule. And until the IRS rules otherwise, they're right. The nature of how ETFs are created precludes them from holding truly identical underlying securities, so there's even less reason to fear the wash sale rule – again, as long as you don't buy the same exact ETF.
How does the Wash Sale Rule differ for Canadian investors?
The was sale rule is a U.S. tax provision and applies only to persons paying U.S. taxes. In Canada, the Canadian Customs and Revenue Agency has a like rule, it is called "superficial loss", and works in a similar manner, except that it applies for 30 days, not 31 as in the U.S.
Trading Questions
I would love to use your system; however, I am not sure that I completely understand how to use it. Can you please explain this with an example?
In brief, after you join and you are on the Members page, you will see three live charts (DIA, SPY, QQQ). These charts are color coded based on the trading signal. If the line is green, you should go long. When red, you short sell. If the line is blue, you do not do anything. For example, if you are in a long position, you are to wait until the line turns red, and then you sell your long position and go short. If you do not want to place a short sell, then just wait for the line to turn green once again. It's pretty simple to use. YOu can also just wait for the signal to show up in your e-mail/SMS text.
Can I use your system with my current strategy?
Yes. The system can be used by itself, or as an additional confirmation to your current trend following strategies. We have a few market timers using our system as well as a check to their own interpretation. Note that our archives and track record are based solely on our system.
Which online broker should I use to buy or sell a stock?
Any major broker will offer the top ETFs. Most of them let you trade ETFs for free.
What is short selling?
Short selling means to sell shares you've borrowed in hopes the price will fall. Here's how it works: you borrow the shares from your broker and sell them. Now you're paying interest on the borrowed shares, but you're also earning interest on the proceeds from the sale. Sooner or later, you have to replace what you've borrowed, but the hope is that the stock price will fall. Then you can buy back the shares for less than you sold them for, replacing what you borrowed and pocketing the difference. When you buy back the shares, this is called "buy-to-cover".
Should we use a market or limit order to buy or short a stock?
This is your choice. We suggest and encourage you to ask this same question to your financial professional. In general, you should always try to get the best price. But then again, you may not want to miss out on the trade. A small price differential between a limit or market order is really insignificant for the broad moves of the market. If you disagree with our timing or price, you may feel more comfortable in placing a limit order.
Which ETF should I trade and how much to trade?
We personally believe in diversification. An investor should always attempt to minimize risk, meaning never put all of your eggs in the same basket! We can not advise anyone as to how much capital they should trade. Everyone has their own financial objectives and risk tolerances. We strongly encourage you to consult with your financial professional.
Would trading options in the QQQ's be a good idea?
We suggest not to trade options on any of the ETFs we cover. There are many traders who are dreamers and hope to make lots of money by leveraging as in options. Potentially one could make much more money using the system if they did trade options, but one can also lose a lot more. We do not believe in options, because it is simply gambling and carries a LOT of risk. We compare option trading to horse racing or penny stocks. In the long run if you traded options, you will lose money. It is only for those who love risk and have thousands of dollars to lay on the table, and don't mind losing it. Our system is intended to be as low risk as possible, and we do not recommend option trading for our members. We believe in slow steady gains over time.
Market Timing System
When do your signals come out?
Our signals are produced by an algorithm that constantly monitors live market data. Therefore, a signal is only prdocued during market hours.
What is the purpose and objective of your timing system?
Our system is designed to consistently outperform the buy-and-hold strategy of investing on a yearly basis. Please visit our track record – we feel it speaks for itself. We encourage you to thoroughly research any web site that claims to have produced exuberant results. A worthy phrase to remember "if it's too good to be true, then it probably isn't". We stress caution with other systems, especially on the Internet. Bottom line: Our primary goal is to help our members move their money forward.
How are your timing signals produced?
MechanicalMarketTiming.com adopts a purely quantitative technical approach that tries neither to predict nor to forecast. Our approach is based on reacting to price action. As such, ours is a combination of 'trend following' and 'momentum' to identify tradable impulses. Trend followers use what we call ‘reactive technical analysis'. Instead of trying to predict the market’s direction, this approach is geared to react to the market’s movements as soon as possible after they occur.
Hence, we seek to respond to the market, not anticipate it. Our focus is therefore on identifying any trend/momentum reversal at a relatively early stage and to ride the new trend until the weight of evidence shows or proves that it has reversed.
What does your trading strategies offer for the investor and trader?
1. Relieve the investor of having to depend on financial analysts' recommendations and on company information, that may or may not be truthful. eliminate the emotional turmoil and confusion that all day traders (and option and future traders) constantly experience.
2. Provide a lower risk method of investing, since you are investing in a broad market (either long or short) as opposed to a single stock that is subject to higher risk, volatility, and many uncontrollable factors that can negatively impact stock price.
3. Consistently beat the long-term buy-and-hold strategy, even in bearish markets. When our timing system gives a bullish signal we are buyers and profit from the rising market. When the stock market turns sour for most, we short sell the market and profit from the decline.
How are your prices determined for your Track Record?
Our track record is based on when our algorithm produces a signal.
In what trading environment does your system perform well, and are there any flaws?
Our system performs very well when the markets are trending — either up or down, and on all time horizons (i.e., short, intermediate, and long). Our mechanical system will produce small negative losses, sometimes back-to-back. The reason for this is because the system is trying to get on the right side of the market prior to a large move (either up or down). Once trending with the market, the system will capture that return. If you follow each trade, members will do very well and overall better than the buy-and-hold strategy of investing. Also, the system is designed to never miss a large gain with the market trends. If you look at our trading statistics page, you will see the drawdowns are quite small as compared to the large gains. This is the beauty of the system.
Once I have become a member, how will I know if the signal has changed?
When you visit the charts on the members page, if the market is comfortably trending in a certain direction, there is no reason to look at the page every day. We do suggest you visit the members page often when the stock price seems to be on the verge of changing. Meaning there is a higher potential of a new signal being produced when the line is blue as opposed to when it is green or red. You will also receive a signal to your e-mail and/or SMS text.
As soon as I become a member and visit the timing signals page, do I enter the trade immediately even if the current stock price has already moved in a specific direction?
This is entirely up to you and your professional advisor for a final decision. If you like, it is sometimes best to sit out (hold cash) and wait until the next signal, especially if the market has moved significantly since our last signal.
Is investment news and other research data taken into consideration?
The mathematical algorithms we use to produce the charts factor in all data.
Site Specific Questions
Can I trade Rydex or ProFund index funds using your market timing system?
Yes, we have many members who have successfully traded Rydex or ProFund index funds using our system, especially dynamic Rydex funds. In fact, there are many Mutual Funds to choose from when trading indexes. For the most part, our signals are exceptional to use for trading any Mutual Fund that contains stocks that compliment the broad market indexes we cover.
Who are your members?
Our members come from many countries in the world. We believe our members are professional investors, stockbrokers, money managers, financial planners and investment advisors, and individual investors. We also believe our members are those who have tried other investing strategies (i.e., day trading, buy-and-hold stocks and stock mutual funds, etc..) and have lost money through those strategies. Investors and traders alike are now looking for "and have found" an honest and lower risk method of investing through our system. For those who truly follow our methodology will notice a gradual increase in their portfolio as time progresses.
What is the difference between a long and short signal?
BUY LONG means we purchase the ETFs DIA, SPY, and QQQ. Sell Short means we purchase the inverse ETFs SH, PSQ, and DOG.
Could you please e-mail me a complete list of your signals for previous years so I may evaluate how effective your signals are?
All of our tables are available to the public. Please go to the left-hand menu on any page and click on "Track Record." Once you are on the page, you can view our individual trades in either PDF format.
When was the back-testing of your system, and when did your system become available to the public with live data?
The system has been back-tested using data from years 2005 through September 2012. We went live in September 2012. The system has done quite well ever since we went live and continues to outperform the market.
For more details of our signals and trading performance, refer to our comprehensive trading statistics for the indexes.
Can I join for a 6-month period instead of a year?
We currently do not offer a 6-month period. If we get numerous requests for this option, then we may consider this option in the future.
What is your privacy policy?
Our company is committed to protecting your privacy while using our site. This is explained in detail in our Private Policy page.
Will your company manage my account?
At this time, we do not manage any personal accounts for our members, and probably will not in the future. However, we can direct you to a broker whom we respect or you can maintain your account with an online broker.
After I become a member is there confirmation of this?
Once authorization is approved, you will receive our confirmation response e-mail. You will then be able to log into the system and will be automatically directed to our exclusive timing signals page with the latest updates!
Who are you?
In short, the site is operated by David Adams, who is a physics major and is interested in algorithmic trading and particle physics. He has a vast amount of experience in interpretation of highly complex charts, and trading stocks using technical analysis.
How can I contact the editor/technical analyst if I have a question?
All correspondences are done through e-mail. You can contact David at info@mechanicalmarkettiming.com.
Once I become a member, can I change my email address in the future?
Yes, just send an e-mail to info@mechanicalmarkettiming.comand include your old and new e-mail addresses.
"Timing is everything." - Ray Dalio, Principles: Life and Work
