How to Use our Signals
The Two Corner Timing signals are based on the Nasdaq 100 index, but it's not possible to invest directly in the index. Fortunately, there are many investments available that attempt to track the Nasdaq 100. Most prominent among these is QQQ, the "PowerShares QQQ" exchange-traded fund (ETF). There are also mutual funds and other ETFs designed to track the index, the inverse of the index, or a multiple of the index's daily performance, offered by such companies as ProFunds (OTPIX, SOPIX, UOPIX, USPIX, PSQ, QLD, QID) and Rydex (RYOCX, RYAIX, RYVYX, RYVNX). For advanced investors there are also future and option contracts on the index itself. Which particular investment to use is up to the investor, and Two Corner Timing LLC makes no recommendation as to which may be the most suitable. The above list isn't meant to be exhaustive, and an investment's mention should not be construed as a recommendation. Whatever investment you choose, take care to control costs - our system does trade often, and that means it's very important to keep per-trade costs under control. The best per-trade cost is zero, which some brokers offer for some of the mutual funds.
The signals may be LONG, SHORT, or CASH (some signals are only LONG/SHORT, and some are only LONG/CASH). A SHORT signal may be traded by actually selling a security short (if account restrictions allow it), or by buying one of the funds that aims for an inverse performance of the Nasdaq 100.
It is possible to use leveraged investments with the Two Corner Timing signals via a margin loan, funds that are designed to track a multiple of the Nasdaq 100's performance, or index futures or options. While any investment has its risks, it should be noted that the risk of leveraged investments typically rises faster than the return of those investments. Two Corner Timing LLC makes no recommendation about what leverage an investor should or should not employ (because we make no investment recommendations). All results shown on twocornertiming.com are for unleveraged long & short investments.
You may trade based on any of the Two Corner Timing signals, or on a combination of multiple signals. By blending different timing signals, you may balance temporary weakness in one signal variation with temporary strength in another. This balance comes in the form of days where you hold a position that is less than fully LONG or SHORT, and may even be in CASH, when signals conflict. While it may seem "wasteful" not to be fully invested, these partial investments offer the advantage of reduced risk while maintaining a long-term return approximately equal to the average of the signals you're combining.
You may also go all-in, 100% invested in whichever market direction the majority of signals predict, or conservatively require that a set of signals all agree on the market direction. Unlike the equal-weighted blend, these methods will never be partially invested (though a CASH signal is still possible).
The are two post-processing filters that can be applied to a signal or a mix of signals. The first is to only invest in the LONG signals. The Composite signal is long-only, but most other signals will sometimes be SHORT. If you prefer not to "bet against the market," or if you have a long-term timing signal that predicts a strong bull market, this filter will disregard any SHORT signals, changing them to CASH.
Another filter is IBS, which stands for Internal Bar Strength. This is a simple yet surprisingly effective timing signal in its own right, and is also a key part of the Composite and and Aggressive signals. The basic theory of IBS is that the market tends to rise the day after it has closed in the lower part of its daily range, and to fall after it has closed in the upper part. While there are a variety of ways to apply this, Two Corner Timing simplifies it to two conditions: above the midpoint (between the daily high and low), and below it. The IBS filter will cancel any LONG signals when the Nasdaq 100 has closed in the upper half of the range, and cancel SHORT signals when the NDX has closed in the lower half. Note that IBS-filtered signals are more difficult to invest, because you need to keep track of the daily range in addition to the index itself.
Most official signals are generated at the market close, and backtests use the closing value of the Nasdaq 100. This performance can only be approximated by trading either before or after the close. Some investments may be traded after the official market close. They generally stay near the closing price, though this may not always be the case.
It is also possible to wait until the next day and trade at or near the market open. Some mutual funds offer morning trades in addition to the typical closing trade. These opening or near-opening trades should use the signal from the previous day's close. The performance of next-morning trading isn't as good as closing trading, but is still worth doing.
Trades can also be placed before the market close using a preliminary signal. This signal is not always the same as the day's final closing signal, and these differences will tend to reduce the performance of early trading. For this reason it is best to get the signal as near the close as practical while leaving adequate time for trading. If trading a mutual fund that is priced at the close, any time in the last 15-20 minutes is sufficient; if trading an ETF like QQQ, it should be placed within the last five minutes.
In addition to signals at the close, Composite and Aggressive will sometimes give signals for the next-day open. While these opening signals improve returns, the effect isn't very large and the trades may be delayed until the close without much sacrifice (about 2% for Composite and 4% for Aggressive).
For the benefit of those trading before the the market close, or for anyone else who's interested, the "Current Signal" page in the members' section includes a graph of the day's Nasdaq 100 index plotted against ranges that determine the closing signal. A sample of this graph is shown below. While the index may move between different ranges throughout the day, the final signal is only determined by its closing value. An investor planning on trading an early signal can use this graph to help decide if that signal is near a cutoff point and likely to change before the close.
Current Composite signal: CASH
NDX 6431.81 (-0.02%)
Pending Composite signal: LONG
Every day after the market close, cutoffs are chosen that determine the signal for the next day's close. There may be as many as three such cutoffs, or there may be none at all (which indicates that the next day's signal is known in advance). These cutoffs are also displayed along with the current signal in the upper left corner of the screen on every page when a user is logged in and are included in the e-mail sent for signal changes.
In addition to the cutoffs computed at the close, there is a dynamic cutoff for any signals with the IBS filter (including Composite and Aggressive which always use IBS). Some (or perhaps all) cutoffs will have two different potential signals, depending if the market closes above of below the midpoint. As the midpoint is determined by the day's prices, it isn't shown until the market is in session. Anywhere the signal depends on the IBS filter will be described with two signals, e.g. "CASH/LONG," with the first indicating the signal if the market closes above the midpoint, and the second if the market closes below it.