The week of July 10th our proprietary, volatility-enhanced algorithms gave a long equity signal on three of the four major indexes. What does that mean and how can you apply it in your individual portfolio? That depends on what type of investor you are.
Our Head Trader and Chief Algorithm Architect, Bret Rosenthal, has three clear options related to your risk tolerance:
- moderately aggressive
Where do you go from here? You’ve got options:
- Read the original, real-time rcmAlgo Alert sent to our subscribers
- Sign up to receive future algorithmic investing alerts as soon as we issue them
- Listen to the podcast below for a deeper analysis and action points
- Follow along with the podcast via the illustrated synopsis below.
rcmAlgo Alert: Long Equity Signal -- July 2017
Getting an algorithmic signal is one thing; knowing how to apply it is another. Here’s the lowdown straight from the Rosenthal Capital Management trading desk. Head Trader, Principal and Chief Algorithm Architect, Bret Rosenthal, explains:
- the recent signals
- their importance
- three ways an individual investor could approach applying the algorithmic information
Have questions about what you hear on the podcast or read in the investment algorithm article? We love answering follow ups: Call or email us.
Risk Reduction Through Investment Algorithms
Emotions function as one of the biggest impediments to sound investing decisions. This can mean your own emotions, those of the people around you, or even those from whom you get your information.
(Next time you witness any financial news, assessment, prediction or recommendation on a major or cable network, newspaper, magazine, podcast or website be mindful of this: Every thought and idea you hear or see must be filtered through the psychology of the speaker.)
Algorithms, however, forgo the impulsive impact of emotions. Instead, investment algorithms base their processes and signals on two fundamentally scientific elements:
By using a complex system of statistics and probability investment algorithms seek instances where the reward is worth the risk. That’s it. Pure and simple mathematics — without world news, personal preference, company announcement or reactionary market response.
Unmoved by market sentiment investment algorithms can identify unique opportunities for a methodical approach to risk reduction. When studiously followed, the algo process can help investors learn to become more disciplined. Stop chasing greed or running from fear and systematic opportunities have the chance to emerge.
Accessing, understanding and applying such a process allows investors to develop a solid foundation of risk management; one that can dramatically help an investor create a strong sense of discipline.
It’s all about getting on the right side of statistics and probability — and avoiding the wrong side of emotions. Making this shift can go a long way in rehabilitating any investment portfolio.
A Top-Down Approach to Investing
The success of investment portfolio rehabilitation depends on combining sound investment entry decisions with strong risk management skills tailored for your individual portfolio goals.
The Rosenthal Capital investment algorithms primarily focus on the equity markets. They do this through the perspective of the four major indexes:
- S&P500 (SPY)
- NASDAQ100 (QQQ)
- Russell SmallCap (IWM)
- US 20+ Year Treasuries (TLT)
[Note: Credit markets give us insight into equity direction.]
Optimized for the volatility of each index, the rcmAlgos reveal the direction of the market. From there, taking into account his risk tolerance, any investor can choose the most appropriate investment decisions.
Our top-down approach to algorithmic investing looks like a pyramid….
Last Week’s rcmAlgo Signal Was Unique
The best entry signals occur when all three big equity indexes give the entry go-ahead within a three-day window. Last week this strong setup materialized as the top three equity algorithms (SPY, QQQ, IWM) all gave long entry opportunities (or, “buy” signals).
[In the podcast above Bret Rosenthal explains why this unique sign is so positive. Plus, what it means when each of the three major indexes go long within a few days of each other. (Hint: It has to do with money flow.)]
How to Use This Investment Algorithm Information
As Bret explains in detail (6:30 into the podcast) there are three basic ways to invest according to this algorithmic information. (For a full how-to explanation take a listen.)
Conservative Approach: Invest in the indexes
Moderately Aggressive Approach: Invest in the indexes plus the groups leading the market
Aggressive Approach: Invest in 2x the S&P500 performance, plus leading groups, plus leading individual stocks in the leading groups
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