Index Trend Model
The Index Trend Model calculates how bullish or bearish the markets are based on the trend and the big picture price action.
The Index trend model calculates how bullish the markets are based on the big picture primary trends of the markets it's made up of. I use it to calculate how much risk I can apply to the market dynamically so the more bullish the markets the more I can risk and vice versa. This is what is know as a regime filter. One thing to note is the trend model is always right for the time periods I chose and my account risk will need to respect that if the market drifts lower. The tough part of managing my account like a trend follower is we give back the tail when a trend ends. When an across the board market liquidation event happens the long only trend follower of stocks isn't loading short positions that naturally capture the down move so needs a method to help manage open long positions affectively. I've chosen a threshold that will let me hold positions through market corrections but start to unwind me from the markets if the normal correction starts to turn into something more sinister. So as I said we naturally give back the tail on trends but the regime filter exits us from bear market action early. On the other side of the bear market leg we tend to be involved a little later also as it takes time for the trend model to allocate risk. The best thing about this method is it's very orderly and methodical and you don't have to deal with the gut wrenching portfolio swings while the market is trends lower. At no point in the process was any prediction needed.
This method I have shared since the website started and it's something I bang on about constantly as I consider it my number 1 risk management goal. In 2015 I freely shared the risk management spreadsheets and put out a video of how I use it to manage these events.
Moving forward to March 2020.
This method I have shared since the website started and it's something I bang on about constantly as I consider it my number 1 risk management goal. In 2015 I freely shared the risk management spreadsheets and put out a video of how I use it to manage these events.
Moving forward to March 2020.
Below is a slideshow of the index trend model & 350 trend model readings leading up to the 2020 Pandemic.
Below is a slideshow of the index trend model readings leading up to the black Monday crash.