tango5 investing method by don wilson january 19, 2007

Tango5 Investing MethodTango5 Investing Method

bybyDon WilsonDon Wilson

January 19, 2007January 19, 2007

www.donsfunds.comwww.donsfunds.com

To win at investing…………….To win at investing…………….

…………… ……………..You must be a good loser!..You must be a good loser!

Method………. vs…………. ExecutionMethod………. vs…………. Execution

““Tonight I Will Show You”Tonight I Will Show You”

What the level of risk is in the market What the level of risk is in the market today – any day. Should I be “In or Out”today – any day. Should I be “In or Out”

Top 1% of 3000 + No Load Mutual FundsTop 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.

My Background

Let’s take a journey.Let’s take a journey. Mechanical Engineer – technical guyMechanical Engineer – technical guy Small business owner last 30yrsSmall business owner last 30yrs Cashed Out in 1987Cashed Out in 1987 Started investing with Fundamental AnalysisStarted investing with Fundamental Analysis Now mechanical trader using Technical Now mechanical trader using Technical

AnalysisAnalysis Since 1997 been investing the Tango5 waySince 1997 been investing the Tango5 way

The Market Timing QuestionThe Market Timing Question

My Concern – Risk of Deep Bear Markets My Concern – Risk of Deep Bear Markets

Tango5: What is it?

Tango5Tango5at www.donsfunds.comat www.donsfunds.com

A fully developed and documented trading A fully developed and documented trading systemsystem When to buyWhen to buy What to buyWhat to buy How to manage your holdingsHow to manage your holdings When to sellWhen to sell How to manage your moneyHow to manage your money How to track your trading historyHow to track your trading history The software “pre-packaged” to run the systemThe software “pre-packaged” to run the system

Tango5 Is AlsoTango5 Is Also ““Semi Automated” to save timeSemi Automated” to save time Almost “Turnkey” investment processAlmost “Turnkey” investment process Almost “Autopilot” in useAlmost “Autopilot” in use A heavy “dose” of my investment philosophyA heavy “dose” of my investment philosophy Novice Investor - Like driving your car ----Novice Investor - Like driving your car ----

Start the motorStart the motorPut it in gearPut it in gearSteer and BrakeSteer and Brake

Expert Investor – Just use it.Expert Investor – Just use it.

““And It Is Free”And It Is Free”

Caveats: Caveats: Must have high level of computer skills or Must have high level of computer skills or

know someone that can help you.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.

Origin of Tango5Origin of Tango5

To teach my adult children how to investTo teach my adult children how to invest Expanded to family & some close friendsExpanded to family & some close friends Expanded to Web Site & several 100 usersExpanded to Web Site & several 100 users All the users I know of are profitableAll the users I know of are profitable Tango5 has been running “real time” for four Tango5 has been running “real time” for four

years years Uses FastTrack and Amibroker SoftwareUses FastTrack and Amibroker Software

and “freeware” Trade and Tradefrand “freeware” Trade and Tradefr

Market TimingMarket Timing My experience with “Market Timing Models” My experience with “Market Timing Models”

since 1994 since 1994 Why? Keeps you out of “Deep” TroubleWhy? Keeps you out of “Deep” Trouble Timing is “Risk Control” not for PerformanceTiming is “Risk Control” not for Performance Tango5 is not a “Black Box”, totally openTango5 is not a “Black Box”, totally open Tango5 MRI (market timing) is all you needTango5 MRI (market timing) is all you need MRI “Managed Risk Investing”MRI “Managed Risk Investing”

How Does it PerformHow Does it Perform Tango5 Back Test Example 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 PortfolioHigh Risk Portfolio 22.72 ann, 13.56 mdd, win rate 73%, holding 4 positions, 8% trailing stop22.72 ann, 13.56 mdd, win rate 73%, holding 4 positions, 8% trailing stop

Mid Risk Portfolio Mid Risk Portfolio

19.77 ann, 10.87 mdd, win rate 68%, holding 4 positions, 6% trailing stop19.77 ann, 10.87 mdd, win rate 68%, holding 4 positions, 6% trailing stop

Low Risk Portfolio Low Risk Portfolio

16.49 ann, 7.43 mdd, win rate 64%, holding 4 positions, 3% trailing stop16.49 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*Note Back testing is a simulation of the past. It is imperfect“Back testing is an approximation of what might happen in the future” “Back testing is an approximation of what might happen in the future”

Backtest Example Tango5Backtest Example Tango5Bear Market YearsBear Market Years

Backtest Results from the Amibroker Custom BacktesterBacktest Results from the Amibroker Custom Backtester

Getting “in & out of the market” at Getting “in & out of the market” at exactlyexactly the the wrongwrong time time

FT data starting 03/21/2000 – 10/07/2002, 2 1/2 years bear marketFT 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 positionsHigh 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 positionsMid 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 positionsLow Risk 10.53 ann, 3.21 mdd, win rate 70%, holding 4 positions

Who Is Tango5 For ?Who Is Tango5 For ?Investment Level Beginners ?

Investment Level Average ?

Investment Level Advanced ?

It can be for all levels

Investing’s Two Major Forces Investing’s Two Major Forces 1. 1. MethodMethod ---- solution --- Tango5 ---- solution --- Tango5

2. 2. ExecutionExecution -- solution - Discipline(Tango5) -- solution - Discipline(Tango5)

Refer to “Mean Markets & Lizard Brains” by Terry BurnhamRefer to “Mean Markets & Lizard Brains” by Terry Burnham

and “Predicting the Markets of Tomorrow” and “Predicting the Markets of Tomorrow” by James P O’Shaughnessy by James P O’Shaughnessy

and “The (MIS) Behavior of Markets by Benoit Mandelbrotand “The (MIS) Behavior of Markets by Benoit Mandelbrot & Richard L Hudson & Richard L Hudson

Market Cycles --- “Are they Real”Market Cycles --- “Are they Real”

Secular Bull & Bear MarketsSecular Bull & Bear Marketssince 1802 ---------- Range 8 to 20 yearssince 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 ofof creating long cycles in financial markets.

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

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

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

Intermediate Term Cycle --- Weeks to MonthsIndicated by OTC New High/Low Summation

NASDQ(OTC) Composite

NASDQ 52 week High/Low Oscillator

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 OscillatorsAdvance / Decline Risk Factor Two OscillatorsHi / Low (52 week) Risk Factor One Oscillator

Rutvol Plus Tango Summary = Tango5 Intermediate Timing

Rutvol Plus Tango Summary = Tango5 Intermediate Timing

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 withTango5 Fund Management When Tango5 is indicating BUY.

Tango SummaryTango 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

Ranking ExplainedRanking Explained

RSI/Stochastic = RSI / 2 + Stochastic / 2RSI/Stochastic = RSI / 2 + Stochastic / 2

NCAlpha = Alpha without the correlation componentNCAlpha = Alpha without the correlation component

Ulcer Index = the negative portion of Standard DeviationUlcer Index = the negative portion of Standard Deviation

Ranking = RSI/Stochastic + NCAlpha – Ulcer IndexRanking = RSI/Stochastic + NCAlpha – Ulcer Index

Absolute numbers are then weighted for Rank calculationAbsolute numbers are then weighted for Rank calculation

Note this table repeatedFor Mid & Low Risk

Example Sector Ranking

Example 2nd Sector Ranking

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

tamrankDW, 6% trailing stop

Starting equity 50K, 09/15/02 to 06/16/05

Amibroker “MRI” ChartsAmibroker “MRI” Charts

“Managed Risk Investing”“Managed Risk Investing”

Tango5 ruttr Indicators - Russell2000

Tango5 rutvol Buy Indicators – Russell2000

Tango5 Dominant Market Indicators-OTC/NY

Tango5 Holdings DrawDownFT File

Tango5 Amibroker DD (DrawDown) Chart

Tango5 Sample Portfolio Equity Chart vs. S&P 500 Composite

Tango5 Sample Portfolio (black)

That’s the Output File That’s the Output File PackagePackage

Market timing – MRI (Managed Risk Investing)Market timing – MRI (Managed Risk Investing) Fund Screening & RankingFund Screening & Ranking Fund Holdings ManagementFund Holdings Management Portfolio ManagementPortfolio Management

Batch Files to Run Tango5Batch Files to Run Tango5

Tango505buy.batTango505buy.batRuns everything, processing time lengthyRuns everything, processing time lengthyRun this when a new Tango Buy signal occursRun 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.batTango505norm.batRuns only the ranking, processing time shortRuns only the ranking, processing time shortRun this daily or weeklyRun this daily or weekly

Back Testing Tango5Back Testing Tango5

A more extensive look at results

Mid Risk Back Test Results

FamilyFamily %stop%stop Ann%Ann% MDDMDD Win%Win%Payoff Payoff RatioRatio SignalSignal

tamranktamrank NONO 19.6519.65 21.9821.98 68.9368.93 nonenone tngo5tngo5

tamranktamrank 44 20.1920.19 13.2413.24 65.5665.56 4.814.81 """"

tamranktamrank 66 19.7719.77 10.8710.87 67.9467.94 4.714.71 """"

tamranktamrank 88 21.2621.26 11.0311.03 69.6469.64 5.705.70 """"

tamrankDWtamrankDW 44 17.4017.40 11.3711.37 63.9263.92 3.153.15 """"




tamranktamrank 66 22.2622.26 9.529.52 73.6873.68 5.025.02 rutmc2xrutmc2x

tamranktamrank 88 21.3221.32 10.6410.64 73.2873.28 5.645.64 """"

tamranktamrank 1010 21.3421.34 11.3911.39 72.9772.97 4.614.61 """"

tamrankDWtamrankDW 44 19.4219.42 8.648.64 67.1767.17 3.483.48 ""




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

Wrap up - Risk When Wrap up - Risk When InvestingInvesting

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”:Tango5 strongly oriented towards controlling “RISK”:

from Market Timingfrom Market Timingfrom Fund Risk Levelsfrom Fund Risk Levelsfrom Fund Selectionfrom Fund Selectionfrom Buy – Sell Rulesfrom Buy – Sell Rules

It’s all about controlling “RISK”It’s all about controlling “RISK” Tango5 puts the odds on “YOUR SIDE”Tango5 puts the odds on “YOUR SIDE”

------- If you “follow the rules”------- If you “follow the rules”

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

TangoETF Signal Trading IWM/Money MarketTangoETF Signal Trading IWM/Money Market

TangoETF Signal Trading IWM vs R2000 ShortTangoETF Signal Trading IWM vs R2000 Short

Reference ListingReference Listing www.donsfunds.comwww.donsfunds.com

““Mean Markets & Lizard Brains” by Terry BurnhamMean Markets & Lizard Brains” by Terry Burnham

““Stock Cycles by Michael A. AlexanderStock Cycles by Michael A. Alexander

““How We Got Here” by Andy KesslerHow We Got Here” by Andy Kessler

““Unexpected Returns – Understanding Secular Stock Unexpected Returns – Understanding Secular Stock Market Cycles” by Ed EsterlingMarket Cycles” by Ed Esterling

““The (MIS) Behavior of Markets by Benoit Mandelbrot & The (MIS) Behavior of Markets by Benoit Mandelbrot & Richard L. HudsonRichard L. Hudson

““Predicting the Markets of Tomorrow” by James P Predicting the Markets of Tomorrow” by James P O’ShaughnessyO’Shaughnessy

tango5 investing method by don wilson january 19, 2007

Documents

system slide

tango5 way slide

tradefr slide

execution slide

years tango5

profitable tango5

origin of tango5

technical analysis