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Dr. Ken Kapur
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Ken Kapur holds MS and PhD degrees in Engineering from the University of Washington, Seattle. He is the author of " Make Money in Up or Down Markets with Eagle Strategies" , "Before and After The Fiscal Crisis" and "Dodging The Depression"
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Make Money in Up or Down Markets
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Make Money in Up or Down Markets With Eagle Strategies
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Make Money in Up And Down Markets With Eagle Strategies
  • You Can Make Money By Following Market Trend Even During The Coming Decline 5 comments
    Apr 27, 2013 9:28 AM | about stocks: TZA, TNA, IWM

    Use trend-following approach first started by Sir John Templeton. By using the Trend Following Approach, one of his fund managers got 57 times the profit obtained by using BUY & Hold strategies. The Trend Following Strategy will get better returns by focusing only on Russell 2000 instead of hundreds of stocks and tens of ETFs.

    Over the last 5 years since Nov 2008, back checking this theory, 86 times the returns using Buy and Hold strategy (of buying only Standard and Poor 500 stocks and holding them for 5 years.) were obtained. Do not day trade. In fact, trade no more than 15 times a year, whenever you get a BUY or SELL signal using Technical Analysis. People who day trade, are doing nothing more than gambling in a casino. Sometimes the trader wins but most of the time he loses.

    Use this trend-following approach on Russell 2000 ETF symbol RUT or IWM. Use RUT or IWM only for getting the BUY & SELL signals. The actual trading is done on TNA (Triple Leveraged Russell 2000) and its inverse TZA (Triple Leveraged Inverse Russell 2000).You must take frequent profits and cut your losses fast. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. Its top 5 holdings by weight are Financials, Consumer Discretionary, Producer Durables, Technology and Health care.

    When RUT generates a BUY signal, buy TNA thus going long. When RUT generates a Sell signal, sell TNA and at the same time, go short by buying the inverse ETF TZA.

    The best part of the approach is that your decisions are not subjective and do not prejudge the direction of the market or duration of the up or down move.

    This strategy is so elegant that it lets you make money whether the market is going up or going down. TNA is for the Up market, and TZA is for the Down market. People who buy CALL or PUT options eventually lose money because all options expire with time. The essence of this approach is that you make even more money in Down Markets as the market goes down faster than in up markets. Most mutual funds just buy and hold. In down markets, they lose all their gains like what happened in 2008 or 2000-2001.

    Average return on a mutual fund is 10%. Average returns are meaningless, as whatever you gained in an Up market, you can lose when the market goes down.

    We do not recommend individual stocks as most of them can be manipulated. Look at APPLE. It went from 700 to 393 even though the market was going up. Insiders manipulate even DJIA so that they can suck in innocent buyers. It consists of only 30 stocks and they have to manipulate only 5 or 6 of these to change the direction of the market.

    This is why use Russell 2000 as it is very difficult to manipulate 2000 stocks. SPX 500 index is also not very difficult to manipulate as the top 40 stocks in SPX 500 control 50% of the SPX 500 universe capitalization.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: TZA, TNA, IWM
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