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Technically Speaking, January 2016

LETTER FROM THE EDITOR

This month’s magazine is focused on actionable ideas for traders. After reading this issue of Technically Speaking, you will have specific ideas for designing a lon-g or short-term trading strategy or advancing your career potential as an investment manager. We’ve also included an article that demonstrates the value of investment skill by reviewing how Berkshire Hathaway performed before Warren Buffett became involved in the company.

In addition to Technically Speaking, the MTA provides actionable ideas at chapter meetings and at the Annual Symposium. It’s time for many of us to start planning for that meeting which will kick off on April 6, 2015 and run through April 8. It will be held in New York City. You can learn more here.

You will also obtain actionable ideas at local chapter meetings. You may have noticed the word “will” in that previous sentence. It jumps out because as investment professionals, we often hedge our statements with phrases including “is likely to” or words like “could.” I am confident you will be exposed to new ideas at MTA chapter meetings and broke with tradition to make an unequivocal prediction. If you haven’t been to a chapter meeting, check for local events by clicking here.

Finally, feel free to share your own actionable ideas with readers of Technically Speaking. Please let us know what you’d like to see in Technically Speaking this year by emailing us at editor@mta.org.

Sincerely,

Michael Carr

What's Inside...

THE WORLD’S LONGEST TREND-FOLLOWING BACKTEST

by Wes Gray, Ph.D.

Editor’s note: this was originally published at Alpha Architect on November 9, 2015 and is republished here with permission. We’re in the middle of an academic research project and we ran a...

AVOIDING THE BIG DRAWNDOWN: DOWNSIDE PROTECTION INVESTMENT STRATEGIES

by Wes Gray, Ph.D.

Editor’s note: this was originally published at Alpha Architect on August 13, 2015 and is republished here with permission. Chasing the Investing Unicorn: Give me “High Returns with Limited...

CALL FOR NAAIM WAGNER AWARD PAPERSRSITY

Launched in 2009, the NAAIM Wagner Award is designed to expand awareness of active investment management techniques and the results of active strategies through the solicitation and publication of...

INTERVIEW WITH LOUIS CIVITARESE, CMT

by Amber Hestla-Barnhart

How would you describe your job? My current role within Merrill Lynch’s Private Banking and Investment Group as the Investment Analyst entails a 75/25 mix of investment and portfolio work vs....

THE IMPORTANCE OF ACTUAL RETURNS IN THE DUE DILIGENCE PROCESS: SEVEN REASONS WHY INVESTMENT MANAGERS SHOULD DOCUMENT ACTUAL PERFORMANCE

by Mike Posey

Editor’s note: This article was originally published by Theta Research and reprinted here with permission. Introduction “…imperfect as it is, actual performance beats whatever is in second...

ENTRY TRIGGERS FOR SUCCESSFUL TRADING

Editor’s note: This article was originally published at The Educated Analyst, an education blog maintained by Market Analyst. Although this article is focused on Entry Triggers for trade...

BERKSHIRE BEFORE BUFFETT

by Dr. Bryan Taylor

Editor’s note: This article was originally published at the Global Financial Data blog and is reprinted here with permission. Everyone is aware of the incredible returns that Berkshire Hathaway has...

CHART OF THE MONTH: AROON

The most successful traders tend to use tools that aren’t widely followed. That doesn’t mean they have secret techniques, it just means they use indicators many traders ignore. The Aroon...

THE WORLD’S LONGEST TREND-FOLLOWING BACKTEST

THE WORLD’S LONGEST TREND-FOLLOWING BACKTEST

Editor’s note: this was originally published at Alpha Architect on November 9, 2015 and is republished here with permission. We’re in the middle of an academic research project and we ran a simple long-term trend-following model from January 1, 1801 to September 30, 2015. Recently, there has been some research on the performance of trend rules over long periods here (and highlighted by CXO here). Our trend-following methodology is further described in our downside protection piece. (Editor’s note: This piece is also the next article in this month’s magazine.) Absolute Performance Rule: Time Series Momentum Rule (TMOM) Excess return = total return over past 12 months less return of T-Bills If Excess return >0, go long risky assets. Otherwise, go long alternative assets (T-Bills) Concept made popular by Gary Antonacci Trending Performance Rule: Simple Moving Average Rule (MA) Moving Average (12) = average of 12 month prices If Current Price – Moving Average (12) > 0, go long risky assets. Otherwise, go long alternative assets (T-Bills). Concept made popular by

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Wes Gray

Wes Gray, Ph.D.

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AVOIDING THE BIG DRAWNDOWN: DOWNSIDE PROTECTION INVESTMENT STRATEGIES

AVOIDING THE BIG DRAWNDOWN: DOWNSIDE PROTECTION INVESTMENT STRATEGIES

Editor’s note: this was originally published at Alpha Architect on August 13, 2015 and is republished here with permission. Chasing the Investing Unicorn: Give me “High Returns with Limited Risk” Having your cake and eating it too is a great way to go. It’s great to have the cake, and it’s also great to eat the cake. But you can’t have it both ways. This trend continues when we speak with fellow investors: “Give me high, after-tax, net of fee returns, but with limited risk and volatility.” Now, we certainly love high returns with low risk. We also love high reward with low effort and high calories with low weight gain. Unfortunately, this brings us to our first problem with the investing unicorn: Problem #1: Unicorns don’t exist, and neither do high returns with low risk. Unless you are my youngest daughter, age 3, unicorns don’t exist. Sadly, high return assets with low risk profiles don’t exist either. Assets that earn

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Wes Gray

Wes Gray, Ph.D.

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CALL FOR NAAIM WAGNER AWARD PAPERSRSITY

CALL FOR NAAIM WAGNER AWARD PAPERSRSITY

Launched in 2009, the NAAIM Wagner Award is designed to expand awareness of active investment management techniques and the results of active strategies through the solicitation and publication of research on active management. $10,000 is presented annually for the best paper submitted to the competition. The competition is open to all investment practitioners, academic faculty and doctoral candidates who submit an innovative topic in the area of active investing. This can be either a documented and justified investing approach or an exploration into the validity of active investing. Active investing topics can involve making investment decisions using technical analysis, quantitative analysis, etc. Papers can also address related topics such as position sizing techniques, money management approaches, scaling into and out of trades, exit strategies, etc. The NAAIM Website has a new feature that allows anyone to search for and download (up to 3 at a time) any of the previously-submitted white papers. 

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

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INTERVIEW WITH LOUIS CIVITARESE, CMT

INTERVIEW WITH LOUIS CIVITARESE, CMT

How would you describe your job? My current role within Merrill Lynch’s Private Banking and Investment Group as the Investment Analyst entails a 75/25 mix of investment and portfolio work vs. client interaction. Much of what I do is rebalancing portfolios and filtering the vast research of Bank of America Merrill Lynch for the benefit of clients. I find this role to be quite unique in finance from the perspective that I need to be fluent in a range of asset classes which spans equities, bonds, private equity, hedge funds, currencies, futures and option strategies. What led you to look at the particular markets you specialize in? I’m not sure if I would call myself a specialist in any particular market, but more of a specialist in blending the investable markets together. Before my current position, I was exposed to nearly all of the asset classes I now deal with on a daily

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

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THE IMPORTANCE OF ACTUAL RETURNS IN THE DUE DILIGENCE PROCESS: SEVEN REASONS WHY INVESTMENT MANAGERS SHOULD DOCUMENT ACTUAL PERFORMANCE

THE IMPORTANCE OF ACTUAL RETURNS IN THE DUE DILIGENCE PROCESS: SEVEN REASONS WHY INVESTMENT MANAGERS SHOULD DOCUMENT ACTUAL PERFORMANCE

Editor’s note: This article was originally published by Theta Research and reprinted here with permission. Introduction “…imperfect as it is, actual performance beats whatever is in second place by a country mile.” Everyone is familiar with the old Chinese proverb saying, “A journey of a thousand miles begins with a single step.” The same can be said about the journey to become an Investment Manager, whether it is for direct clients, on behalf of other Advisors serving as asset accumulators and subadvisors, or both. Laying the proper groundwork can set the stage for a successful Investment Manager to attract millions (or maybe billions) of dollars in assets. Failure to do so can result in just the opposite, even if the investment model is viable.  The important thing to remember is that the journey is a process, not an event, so planning is a must. Once the heavy lifting of developing a model strategy is done,

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Mike Posey

Mike Posey

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ENTRY TRIGGERS FOR SUCCESSFUL TRADING

ENTRY TRIGGERS FOR SUCCESSFUL TRADING

Editor’s note: This article was originally published at The Educated Analyst, an education blog maintained by Market Analyst. Although this article is focused on Entry Triggers for trade initiation, the successful trader knows that Entry Triggers are just one component of success. In order to have a comprehensive understanding of success in trading, any discussion on the Entry Trigger topic must also address the perspective and context of the underlying market condition. Perhaps I should start by expressing my thanks to Ray Barros, who taught and guided me at a crucial phase of my growth as a trader. Essentially, Ray’s philosophy is to identify the direction and trend of the higher timeframes (he calls this the Perspective). The Perspective timeframes have a strong impact on the direction of the lower timeframe Trader’s Trend.  Perspective If the higher timeframe direction is up, the lower timeframe trend is likely to be up. As long as the

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

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BERKSHIRE BEFORE BUFFETT

BERKSHIRE BEFORE BUFFETT

Editor’s note: This article was originally published at the Global Financial Data blog and is reprinted here with permission. Everyone is aware of the incredible returns that Berkshire Hathaway has provided shareholders during the past fifty years that Warren Buffet has run the company. In the late 1960s, when Warren Buffett became CEO of Berkshire Hathaway, shares in the company were trading at under $20. Today, shares trade around $200,000. During the same period of time, the S&P 500 Total Return Index went from around 38 to 3800. While the S&P 500 increased 100-fold, Berkshire Hathaway increased 10,000-fold. That is what I call value added. But how well did Berkshire Hathaway perform before Warren Buffett took over the company? Had the company performed well even before Warren Buffett took over, or did Buffett change the company’s performance dramatically? Berkshire Fine Spinning Associates is Formed Berkshire Fine Spinning Associates Inc. incorporated under Massachusetts laws in

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Dr. Bryan Taylor - 2022

Dr. Bryan Taylor

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CHART OF THE MONTH: AROON

CHART OF THE MONTH: AROON

The most successful traders tend to use tools that aren’t widely followed. That doesn’t mean they have secret techniques, it just means they use indicators many traders ignore. The Aroon indicator is among the trading tools that are widely available but not widely used. Market analyst Tushar Chande introduced the Aroon indicator to traders in a 1995 magazine article.[1] He designed the indicator specifically to identify the beginnings of a trend. He wanted an indicator to signal at dawn’s early light, or as he explained: You can count on the markets changing direction, just as you can count on day following the night. Like the sun, trends emerge, rise to a peak, weaken and fade away. In Sanskrit, Aroon is the word for dawn’s early light, the first sign of a new day or a change from night to day. Thus, “Aroon” is an apt name for an indicator that is sensitive

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

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New Educational Content This Month

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