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Trend Aggregation Components

Trend Aggregation Components

Multiple Adaptive Methodologies

Having multiple adaptive methodologies with different buy and sell metrics creates return streams that are not correlated with each other. This works based on the following market dynamics:

  • Markets move in recognizable short and intermediate-term trends and countertrends.
  • Over the intermediate term, asset classes that are strong tend to remain strong; asset classes that are weak tend to remain weak.
  • Over the short term, markets are dominated by noise, fear and greed. This causes markets to overreact to the upside or downside before eventually moving back to equilibrium.

Time Frame Variation

Tactical management evaluates which time frame to look at to determine the trend of the market. Other investment management approaches choose only one time frame, often ignoring the fact that different time frames work better in different types of markets. In tactical management, diversification is achieved by mixing multiple time frames as the market dictates. For instance, shorter time frames work best in straight up or straight down markets; longer time frames work better in choppy markets.

Tactical management time variation factors include:

  • Look-back periods from 1 to 120 days
  • Integrating shorter time frames, which recognizes an uptrend or downtrend earlier and enters or exits the market at the time of trend confirmation
  • Filtering out the short-term market noise that can occur in choppy markets by also integrating longer time frames

Concentrating on only one time frame can cause an investor to miss opportunities. This can result in a strategy that underperforms in markets that are not ideal for the time frame selected.

Investors must always be able to protect the wealth they have accumulated. Tactical investment management incorporates these concepts in a dynamic management process which can adjust to changing market conditions, recognizing the need to effectively position assets to stay in harmony with market trends and countertrends.

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