And sometimes the trends just aren’t there, in which case, we keep cash on the sidelines until it’s safe to go back.
4. What ETFs are included in the portfolio and does the lineup ever change?
What ETFs we choose to include in our portfolio is simply a matter of where the trends are. We don’t employ an asset allocation model. Instead, we look at which funds are above their long-term trendlines (the 200-day moving average). We also consider other factors, such as assets, trading volume, any particulars of the sector or global region and so on before we make a buy.
And while we don’t employ traditional asset allocation, it is necessary to consider where you’re already invested. For example, if you’re holding an energy fund, you may not want to invest in Latin America or Russia, since those areas are heavily allocated toward the energy sector and could leave you overweight.
5. Does the 200-day discipline work the same for all ETFs?
The 200-day discipline can be applied to nearly any security, but it works especially well for ETFs. Having a buy signal at the 200-day moving average mark gives you a chance to have your money invested when a potentially new uptrend is beginning. Having a sell point that has you out when an area is below the 200-day or 8% off the recent high provides you the chance to get out before things could potentially worsen, while also working to protect any gains you may have had.