Market Listener ™-- Adaptive Trend Following

Market Listener
Trading Methods

Here we will give you the basics on how and what we trade. If you have additional questions, see our Frequently Asked Questions (FAQ)page.

THREE (3) BASIC SIGNALS
The Market Listener uses three (3) basic signals to guide our trading with 50% and 100% variations on our Buy and Sell signals given only on rare occasions. Many other systems must be either long or short and they have no provision for moving to Cash when no firm trend is in place.

We have included some common definitions at the bottom of this page.

OUR SIGNALS ARE BASED ON THE NASDAQ 100
Our basic system tracks the Nasdaq 100. To enhance our gains, we use some leverage by trading Rydex Dynamic Funds in a Rydex account. These Rydex Dynamic Funds give us +2.0 (200%) leverage with RYVYX Dynamic OTC fund and -2.0 (-200%) leverage with inverse RYVNX Inverse Dynamic OTC fund.

If you do not understand the concept of “leverage” or funds which are “inversely” correlated to an index, then you should not trade these funds.

To help you understand these concepts, you can go to the Rydex or Profunds website for more information.

Rydex Funds- http://www.rydexfunds.com/EducationCenter/
Profunds - http://www.profunds.com/profiles/ultra.asp
If you trade Profunds, you can buy UOPIX - UltraOTC on our Buy signals. You can buy USPIX - UltraShort OTC when we get a Sell signal.

SIGNALS DEFINED
Each signal has a particular meaning in how we want our funds to be positioned.

Here are the basic definitions of our signals;

BUY signal - Move 100% of funds from current fund to;
Rydex RYVYX - Dynamic OTC or ProFunds UOPIX - UltraOTC

SELL signal - Move 100% of funds from current fund to;
Rydex RYVNX - Inverse Dynamic OTC or ProFunds USPIX - UltraShort OTC

http://www.profunds.com/profiles/inverse.asp

CASH signal - Move 100% of funds from current fund to;
Rydex RYMXX - Government Money Market fund or
ProFunds MPIXX - ProFunds Money Market fund.

Typical Model Chart
In the chart below we have identified some Market Listener historical market signals. We try to keep our signals to a minimum and prefer to use a Weekly NDX Chart as our base model. As you can see, we use the Cash (yellow) signal when the trend begins to reverse during a Buy or Sell signal. When the trend moves in our direction, we stay with the trend until our technical analysis signals reverse or until an extreme condition occurs in a sentiment-based ratio (not shown).

TRADING IN YOUR ACCOUNT

In all of these signals, we are exiting (selling) one fund and buying another. Even when we generate a SELL signal, we want you to exit (SELL) the current fund and BUY the RYVNX (or USPIX) short fund. In Rydex and most mutual fund online trading systems, you specify how much money is to be moved “FROM” a fund and then specify the “TO” fund for that money. The selling of one fund and the buying of the second occur in one trade transaction. You will get that day’s closing Net Asset Value (NAV) for the fund you are exiting and for the fund you are entering. This, of course, depends on you placing the trade before the deadline for trading as set by your fund manager.

Rydex and other fund managers may have differing trading deadlines depending on whether you are placing the trade by telephone (with an adviser), telephone (automated) or online (internet). We recommend that you document your fund’s telephone number, your account numbers, available fund symbols, and trade deadlines and have them in a convenient place for placing late-day trades.

Some mutual fund families have trading restrictions. These restrictions can affect gains and can deny your trade at a very inopportune time in the markets. You must be aware of your account’s trading restrictions. (See Frequent Trading and Trading Restrictions topic below).

NOTE: The Market Listener service cannot anticipate the many individual trading restrictions, frequent trading fees and market volatility. These are risks to your personal account and can dramatically impact your account gains and losses. Our signals and the results are based on unlimited trading, no trading fees or commissions, no restrictions and our ability to place trades before the close of trading for the day the signal is given.

SIGNAL TRANSITION
Because our signal analyses are fairly slow, the technical indicators tend to “roll over” slowly from one signal to another. If we are unclear about that transition because the chart indicators are divergent, we may simply advise going to cash until any confusing indicators begin to clarify. There may also be times when our profit and certain indicators reach an extreme position, when we then choose to move to cash to preserve value suspecting that the markets have moved too far to fast. A Cash signal allows us to stand on the sidelines until a better defined trend asserts itself.

OUR RARE 50% SIGNALS
On rare occasions we may issue a 50% Buy or 50% Sell as we transition from one signal to another. These signals simply only having 50% of our normally traded funds in the RYVYX or RYVNX funds. We would do this only when the trend has weakened and we are “reducing” our current position in anticipation of a trend turn. For example if we are on a BUY signal, we are 100% invested in RYVYX. If, because of a reversal of the market, we recommend a 50% BUY signal, then we would sell 50% of our investment in RYVYX and move it to cash (money market funds). Later, we may again resume the 100% Buy signal. These signals give us more flexibility when sentiment indicators are in opposition to short-term price trends.

If these signals are confusing to you, then just disregard the 50% signal and go completely to cash (money market) until a new 100% Buy or 100% Sell signal is given.

TRADING OTHER FUNDS OR ETF’S
You do not have to trade leveraged funds to use our signals. You can trade the QQQQ’s or other mutual funds or ETF’s related to the Nasdaq 100 or Nasdaq Composite indexes. You could use our signals to go long the QQQQ’s when we have a Buy signal and sell them when we issue a Cash or Sell signal. You could also short the QQQQ’s in your brokerage account when we issue a Sell signal.

HEDGING TACTICS
Some investors use our signals just to alert them when we are negative (Sell signal) on the market which allows them to exit their mutual funds and go to money market funds. Other fund managers use our Sell signals to hedge their long stock portfolios with some amount of inverse (-200%) funds such as RYVNX or USPIX during the time the sell signal is in effect.

FREQUENT TRADING AND TRADING RESTRICTIONS
Some mutual funds permit trading Rydex and Profunds in your account, however they impose frequent trading fees and limit the frequency of trades. This is not good and you should advise your mutual fund family that you are not happy with their fees and restrictions. Those of you who have trading limitations must limit the number of trades. We will attempt to advise you of significant market turns based on a trading frequency of 2-4 times per year. These signals will be separate from our normal trading signals and could, at times differ with our normal signals which require much more frequent trading.

Though much of our Market Listener trading is accomplished infrequently, we could have 20-30 trades per year in volatile markets. Frequent trading may have tax consequences unless you are trading in a tax-deferred account. Talk with your broker or financial adviser about tax consequences and fees required for frequent trading.

MONEY MANAGEMENT
Our trading methods should be considered risky. We try to minimize the risk with stops and active management on your part. You and your investment adviser must decide how you might use our signals. One method of controlling risk from leveraged trades is to only trade a small portion of funds available until you get comfortable with the trend following process and returns.

STOP LEVELS
After identifying a new signal, we set a “stop” price level which, if hit, tells us that our signal was wrong or is no longer a good idea. We call our stop levels with a fancy name, “Fault Tolerant Cash Safety Stop” (FTCSS). The “fault tolerant approach” is a very important part of the Market Listener strategy. Minimizing the losses from signal faults is what the FTCSS does. A stop gives us an unemotional, mathematical alert that our signal is wrong or has run its course and keeps wrong signals from escalating into big losses. The stop concept allows us to keep losses small and let our winners run wild!

Our stops are “trailing stops” which move ONLY in the direction of profitability. In effect we “ratchet” our gains by moving our stops as we profit. In slow moving, but trending markets, this is a very effective way to profit. The stops are calculated by our system based on recent average true range (ATR) of the NDX price. The ATR is a larger number when the markets are wildly oscillating and a smaller number when the daily swings in price are more controlled.

In a brokerage account you may be familiar with placing firm “stop” orders with your broker or online to buy or sell at a certain price. Mutual fund companies usually do NOT accept stop orders. Therefore our stop orders must be “mental” stops. You must have the stop price in mind and act on it yourself as we approach the end of the trading day. In general, we try to send email alerts to trigger your memory that we are getting close to a stop level. But in some cases, sending an alert may not be possible, or timely enough to trigger your memory.

Subscribers will be given stop signals in terms of “points” and a starting level. If the market moves in our intended direction, the stop level moves by the number of points of daily move on the NDX and remains a certain number of “points” away from the daily close. If the market moves against us, the stop level DOES NOT MOVE. Once you begin to understand stops, you will realize that it is our secret weapon to maximize profits. If you do not understand stops, keep listening and we will show you how it works over time. Here is a link that may help you understand the concept:
http://www.investopedia.com/articles/trading/03/080603.asp

WE ARE NOT INVESTMENT ADVISERS
The Market Listener signals are given to all subscribers without regard for your personal financial situation. We are not allowed to give personal advice to individual subscribers or modify our signals to suit your needs. We simply give signals based on our chart model, proprietary calculations, and some discretionary input. Our intent is to educate you on our methods and permit you to then make educated decisions based on your own financial situation. Neither the Market Listener nor the members of Listening Partners, LLC are registered investment advisers.

DEFINITIONS:
Beta - occasionally we use the term beta. Beta is a measure of the price volatility of a stock or index relative to the overall market. It is usually calculated using the stock's price movements relative to the S&P 500 Index over the trailing 12-month period. A beta greater than 1.0 means that the index moves in a more radical (volatile) way than a stock or index that has a beta less than 1.0. Beta is somewhat similar to leverage in that you can use it to give you higher gains if your trade direction is correct. But beta is inherent in the stock or index because of its trading nature and is not achieved by use of futures or options like the leverage provided in leveraged funds.

FTCSS - Fault Tolerant Cash Safety Stop. A Market Listener calculated stop/exit point on the NDX where we must exit the current Buy or Sell signal and go to cash. See Trailing Stop below.

Leverage - leverage is defined by having more appreciable gains or losses in your investment vehicle that in the underlying stock index. Some Rydex and Profunds funds give investors leverage on the underlying index. Leverage is a good thing when the trade moves in your direction, but is a bad thing when you are not invested with the trend. In our case leverages of 200% and -200% are available with RYVYX and RYVNX. Rydex uses futures contract and options to provide the funds with the required leverage.

Long - going “long” or being “long the market” means that you invest in an investment vehicle that makes money when market prices rise. Buying a stock is an example of going long.

Short - going “short” or being “short the market” means that you invest in an investment vehicle that makes money when the market goes down. Shorting a stock or buying a put option would be examples of going short.

Stop - A “stop” is a price trigger level on the NDX which, if exceeded (above or below) would trigger an automatic signal to move OUT of the funds we are in to CASH. A stop is a way of limiting our losses for each signal. If we are on a Buy signal, then the stop is located below the current price of the NDX. If the NDX moves below that stop price level, we exit our RYVYX funds and go to cash. If we are on a Sell signal, then the stop is located above the current price of NDX. If the NDX then moves above that stop price level, we exit our RYVNX funds and go to cash.

Stop and Reverse - A “stop and reverse” is a price trigger level which will cause us to directly move from a Buy to a Sell signal or from a Sell signal to a Buy signal when the market price crosses our stop level. In a "stop and reverse" transition there is no intermediate cash position.

Trailing Stop - Stop levels are moved periodically (as we are making profit) so that if the market reverses, we can exit with some profit. The moving of a stop price level is called a “trailing stop” because it moves with, but trails behind if price moves in our intended direction. We will give you specific instructions whenever we set up a stop. In effect, all stops are “trailing stops” and you will learn to move them daily based on closing prices. Trailing stops are very important in ratcheting up our gains and not allowing an extreme reversal to take away all of our profit on a good trade.