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Tango5 Investing Method by Don Wilson January 19, 2007 www.donsfunds.com.

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Presentation on theme: "Tango5 Investing Method by Don Wilson January 19, 2007 www.donsfunds.com."— Presentation transcript:

1 Tango5 Investing Method by Don Wilson January 19, 2007 www.donsfunds.com

2 To win at investing……………. ……………..You must be a good loser! ……………..You must be a good loser! Method………. vs…………. Execution Method………. vs…………. Execution

3 “Tonight I Will Show You” What the level of risk is in the market today – any day. Should I be “In or Out” What the level of risk is in the market today – any day. Should I be “In or Out” Top 1% of 3000 + No Load Mutual Funds Top 1% of 3000 + No Load Mutual Funds - any day - any day Make “good money” year in and year out. Make “good money” year in and year out. Only if you follow the rules. Only if you follow the rules.

4 My Background Let’s take a journey. Let’s take a journey. Mechanical Engineer – technical guy Mechanical Engineer – technical guy Small business owner last 30yrs Small business owner last 30yrs Cashed Out in 1987 Cashed Out in 1987 Started investing with Fundamental Analysis Started investing with Fundamental Analysis Now mechanical trader using Technical Analysis Now mechanical trader using Technical Analysis Since 1997 been investing the Tango5 way Since 1997 been investing the Tango5 way

5 The Market Timing Question

6 My Concern – Risk of Deep Bear Markets

7 Tango5: What is it?

8 Tango5 at www.donsfunds.com A fully developed and documented trading system A fully developed and documented trading system When to buy When to buy What to buy What to buy How to manage your holdings How to manage your holdings When to sell When to sell How to manage your money How to manage your money How to track your trading history How to track your trading history The software “pre-packaged” to run the system The software “pre-packaged” to run the system

9 Tango5 Is Also “Semi Automated” to save time “Semi Automated” to save time Almost “Turnkey” investment process Almost “Turnkey” investment process Almost “Autopilot” in use Almost “Autopilot” in use A heavy “dose” of my investment philosophy A heavy “dose” of my investment philosophy Novice Investor - Like driving your car ---- Start the motor Put it in gear Steer and Brake Novice Investor - Like driving your car ---- Start the motor Put it in gear Steer and Brake Expert Investor – Just use it. Expert Investor – Just use it.

10 “And It Is Free” Caveats: Caveats: Must have high level of computer skills or know someone that can help you. Must have high level of computer skills or know someone that can help you. Considerable set up detail. Considerable set up detail. It takes your time and effort. It takes your time and effort.

11 Origin of Tango5 To teach my adult children how to invest To teach my adult children how to invest Expanded to family & some close friends Expanded to family & some close friends Expanded to Web Site & several 100 users Expanded to Web Site & several 100 users All the users I know of are profitable All the users I know of are profitable Tango5 has been running “real time” for four years Tango5 has been running “real time” for four years Uses FastTrack and Amibroker Software and “freeware” Trade and Tradefr Uses FastTrack and Amibroker Software and “freeware” Trade and Tradefr

12 Market Timing My experience with “Market Timing Models” since 1994 My experience with “Market Timing Models” since 1994 Why? Keeps you out of “Deep” Trouble Why? Keeps you out of “Deep” Trouble Timing is “Risk Control” not for Performance Timing is “Risk Control” not for Performance Tango5 is not a “Black Box”, totally open Tango5 is not a “Black Box”, totally open Tango5 MRI (market timing) is all you need Tango5 MRI (market timing) is all you need MRI “Managed Risk Investing” MRI “Managed Risk Investing”

13 How Does it Perform Tango5 Back Test Example Backtest Results from the Amibroker Custom Backtester. Backtest Results from the Amibroker Custom Backtester. All FT data, 15 years of history. All FT data, 15 years of history. High Risk Portfolio 22.72 ann, 13.56 mdd, win rate 73%, holding 4 positions, 8% trailing stop High Risk Portfolio 22.72 ann, 13.56 mdd, win rate 73%, holding 4 positions, 8% trailing stop Mid Risk Portfolio 19.77 ann, 10.87 mdd, win rate 68%, holding 4 positions, 6% trailing stop Mid Risk Portfolio 19.77 ann, 10.87 mdd, win rate 68%, holding 4 positions, 6% trailing stop Low Risk Portfolio 16.49 ann, 7.43 mdd, win rate 64%, holding 4 positions, 3% trailing stop Low Risk Portfolio 16.49 ann, 7.43 mdd, win rate 64%, holding 4 positions, 3% trailing stop *Note Back testing is a simulation of the past. It is imperfect “Back testing is an approximation of what might happen in the future”

14 StatisticsStatistics | Charts | Trades | Formula | Settings | SymbolsChartsTradesFormulaSettingsSymbols Statistics Backtest Example Tango5 Bear Market Years Backtest Results from the Amibroker Custom Backtester Backtest Results from the Amibroker Custom Backtester Getting “in & out of the market” at exactly the wrong time Getting “in & out of the market” at exactly the wrong time FT data starting 03/21/2000 – 10/07/2002, 2 1/2 years bear market FT data starting 03/21/2000 – 10/07/2002, 2 1/2 years bear market High Risk 9.76 ann, 8.30 mdd, win rate 80%, holding 4 positions High Risk 9.76 ann, 8.30 mdd, win rate 80%, holding 4 positions Mid Risk 11.29 ann, 6.77 mdd, win rate 75%, holding 4 positions Mid Risk 11.29 ann, 6.77 mdd, win rate 75%, holding 4 positions Low Risk 10.53 ann, 3.21 mdd, win rate 70%, holding 4 positions Low Risk 10.53 ann, 3.21 mdd, win rate 70%, holding 4 positions

15 Who Is Tango5 For ? Investment Level Beginners ? Investment Level Average ? Investment Level Advanced ? It can be for all levels

16 Investing’s Two Major Forces 1. Method ---- solution --- Tango5 1. Method ---- solution --- Tango5 2. Execution -- solution - Discipline(Tango5) Refer to “Mean Markets & Lizard Brains” by Terry Burnham 2. Execution -- solution - Discipline(Tango5) Refer to “Mean Markets & Lizard Brains” by Terry Burnham and “Predicting the Markets of Tomorrow” by James P O’Shaughnessy and “The (MIS) Behavior of Markets by Benoit Mandelbrot & Richard L Hudson and “Predicting the Markets of Tomorrow” by James P O’Shaughnessy and “The (MIS) Behavior of Markets by Benoit Mandelbrot & Richard L Hudson

17 Market Cycles --- “Are they Real”

18 Secular Bull & Bear Markets since 1802 ---------- Range 8 to 20 years There is a definite pattern here! What causes these cycles? FEAR and GREED, yes but that is to simple. Michael Alexander, Andy Kessler, and Ed Esterling’s research shows that “Innovation Waves” especially since the “Industrial Revolution” have the effect of of creating long cycles in financial markets.

19 Another Illustration of the Cycling of Valuation Corresponding to Secular Bull and Bear Markets for the last 100 years

20 Copyright 2006, Crestmont Research (www.CrestmontResearch.com) 1.00 10.00 100.00 1,000.00 10,000.00 100,000.00 19109010911092109310941095109610971098109911901191119 21193119411951196119711981199129012911292129312941295 1296129712981299139019113921393139413951396139713981 3991490149114921493149414951496149714981499159015911 5921593159415951596159715981599169016911692193169416 9516961697169816991790179117921793179417951796179717 9817991890189118921893189418951896189718981899199019 9119921993199419519961997199829092000200120022003200 405 0 15 30 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 SECULAR STOCK MARKETS EXPLAINED Dow Jones Industrial Average: 1900-2005 P/E Ratio (trailing) Secular stock market cycles are driven by trends in the price/earnings ratio (P/E) Secular bull markets start after the trough of below-average P/Es Secular bears start after the peak of above-average P/Es +2% +317% -80% 200% -38% +774% -10% +1214% ???% Despite market declines in the 2000s, P/Es remain above average and trending lower − the potential sign of a current secular bear market 1,000 100 10,000 Copyright 2006, Crestmont Research (www.CrestmontResearch.com) 1.00 10.00 100.00 1,000.00 10,000.00 100,000.00 1910901091109210931094109510961097109810991190119111 92119311941195119611971198119912901291129212931294129 5129612971298129913901911392139313941395139613971398 1399149014911492149314941495149614971498149915901591 1592159315941595159615971598159916901691169219316941 6951696169716981699179017911792179317941795179617971 7981799189018911892189318941895189618971898189919901 9911992199319941951996199719982909200020012002200320 0405 0 15 30 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 SECULAR STOCK MARKETS EXPLAINED Dow Jones Industrial Average: 1900-2005 P/E Ratio (trailing) Secular stock market cycles are driven by trends in the price/earnings ratio (P/E) Secular bull markets start after the trough of below-average P/Es Secular bears start after the peak of above-average P/Es +2% +317% -80% 200% -38% +774% -10% +1214% ???% Despite market declines in the 2000s, P/Es remain above average and trending lower − the potential sign of a current secular bear market 1,000 100 10,000

21 Is the Four Year Cycle Always Four Years? “NO” Lets Take a Closer Look

22 The Average of the Last 60 Years is 4.02 years. But the Range is from 2.68 yrs to 5.31 yrs

23 Intermediate Term Cycle --- Weeks to Months Indicated by OTC New High/Low Summation NASDQ(OTC) Composite NASDQ 52 week High/Low Oscillator

24 Market Timing Components for Tango5 Explained 1. Rutvol uses Price-R2000, Total Volume NASDQ 2, Tango5 Summary: Dominant Market Relative Strength of NASDQ vs NYSE Then Uses Data from Dominant Market NASDQ or NYSE for: Market Environment 30yr Bond, Price Osc., McClelland Summation Price Risk Factor Two Oscillators Advance / Decline Risk Factor Two Oscillators Hi / Low (52 week) Risk Factor One Oscillator Rutvol Plus Tango Summary = Tango5 Intermediate Timing

25 The RUTVOL test has passed. Further analysis is needed. Data by www.FastTrack.Net The Total for 09/01/06 is 4 or above. We should be invested in the market. Handle investments in accordance with Tango5 Fund Management When Tango5 is indicating BUY. Tango Summary 09/01/06 08/31/06 08/30/06 08/29/06 08/28/06 -------- -------- -------- -------- -------- Dominant Market Score 1.00 1.00 1.00 1.00 1.00 Dominant Market Environment 1.00 1.00 1.00 1.00 1.00 Dom Mkt Risk-Price factor 1.00 1.00 1.00 1.00 1.00 Dom Mkt Risk-Adv/Dec factor 1.00 1.00 1.00 1.00 1.00 Dom Mkt Risk-High/Low Factor 1.00 1.00 1.00 1.00 1.00 ----------------------------- -------- -------- -------- -------- -------- Tango5 Total Score 5.00 5.00 5.00 5.00 5.00

26

27 Ranking Explained RSI/Stochastic = RSI / 2 + Stochastic / 2 NCAlpha = Alpha without the correlation component Ulcer Index = the negative portion of Standard Deviation Ranking = RSI/Stochastic + NCAlpha – Ulcer Index Absolute numbers are then weighted for Rank calculation

28 Note this table repeated For Mid & Low Risk

29 Note this table repeated For Mid & Low Risk

30 Example Sector Ranking

31 Example 2nd Sector Ranking

32 Ann 18.96 MDD 8.83 Win % 72.18 PayRatio 3.46 tamrankDW, 6% trailing stop Starting equity 50K, 09/20/89 to 06/16/05

33 tamrankDW, 6% trailing stop Starting equity 50K, 09/15/02 to 06/16/05

34 Amibroker “MRI” Charts “Managed Risk Investing”

35 Tango5 ruttr Indicators - Russell2000

36 Tango5 rutvol Buy Indicators – Russell2000

37 Tango5 Dominant Market Indicators-OTC/NY

38 Tango5 Holdings DrawDownFT File

39 Tango5 Amibroker DD (DrawDown) Chart

40 Tango5 Sample Portfolio Equity Chart vs. S&P 500 Composite Tango5 Sample Portfolio (black)

41 That’s the Output File Package Market timing – MRI (Managed Risk Investing) Market timing – MRI (Managed Risk Investing) Fund Screening & Ranking Fund Screening & Ranking Fund Holdings Management Fund Holdings Management Portfolio Management Portfolio Management

42 Batch Files to Run Tango5 Tango505buy.bat Runs everything, processing time lengthy Run this when a new Tango Buy signal occurs Tango505buy.bat Runs everything, processing time lengthy Run this when a new Tango Buy signal occurs * Note initially you must run this file first * Note initially you must run this file first Tango505norm.bat Runs only the ranking, processing time short Run this daily or weekly Tango505norm.bat Runs only the ranking, processing time short Run this daily or weekly

43 Back Testing Tango5 A more extensive look at results

44 Mid Risk Back Test ResultsFamily%stopAnn%MDDWin% Payoff Ratio Signal tamrankNO19.6521.9868.93 none nonetngo5 tamrank420.1913.2465.564.81"" tamrank619.7710.8767.944.71"" tamrank821.2611.0369.645.70"" tamrankDW417.4011.3763.923.15"" tamrankDW616.8011.0969.772.81"" tamrankDW818.4310.7474.773.44"" tamrankDW1017.6014.5271.733.04"" tamrank622.269.5273.685.02rutmc2x tamrank821.3210.6473.285.64"" tamrank1021.3411.3972.974.61"" tamrankDW419.428.6467.173.48" tamrankDW618.968.8372.183.46"" tamrankDW818.9511.1176.793.33"" tamrankDW1018.1812.6475.233.15""

45 Mid Risk 9/1/1988 - 9/29/2005 Stop 6% Holding Four Funds

46 Wrap up - Risk When Investing You can’t control the “Market Action” You can’t control the “Market Action” You can control “RISK” You can control “RISK” Tango5 strongly oriented towards controlling “RISK”: from Market Timing from Fund Risk Levels from Fund Selection from Buy – Sell Rules Tango5 strongly oriented towards controlling “RISK”: from Market Timing from Fund Risk Levels from Fund Selection from Buy – Sell Rules It’s all about controlling “RISK” It’s all about controlling “RISK” Tango5 puts the odds on “YOUR SIDE” ------- If you “follow the rules” Tango5 puts the odds on “YOUR SIDE” ------- If you “follow the rules”

47 New ETF Rotational Trading Method vs S&P,R2000,& OTC Indexes

48 TangoETF Signal Trading IWM/Money Market

49 TangoETF Signal Trading IWM vs R2000 Short

50 Reference Listing www.donsfunds.com www.donsfunds.comwww.donsfunds.com “Mean Markets & Lizard Brains” by Terry Burnham “Mean Markets & Lizard Brains” by Terry Burnham “Stock Cycles by Michael A. Alexander “Stock Cycles by Michael A. Alexander “How We Got Here” by Andy Kessler “How We Got Here” by Andy Kessler “Unexpected Returns – Understanding Secular Stock Market Cycles” by Ed Esterling “Unexpected Returns – Understanding Secular Stock Market Cycles” by Ed Esterling “The (MIS) Behavior of Markets by Benoit Mandelbrot & Richard L. Hudson “The (MIS) Behavior of Markets by Benoit Mandelbrot & Richard L. Hudson “Predicting the Markets of Tomorrow” by James P O’Shaughnessy “Predicting the Markets of Tomorrow” by James P O’Shaughnessy


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