Read this, and decide if you want to be a part of this project. Or not.
The Hari Seldon Trader model:
it is a mathematical algorithm, a complex “formula” which tries to react promptly to the changes in prices of indexes (Technical Analysis TA) and to the changes in economy (Fundamental Analysis FA)
There are many Technical indicators, based on price/volume trends, as
- RSI index
- MACD index
- Moving Averages (simple or exponential)
- Bollinger bands
- Ichimoku indicators
- Golden cross / Death cross
- Divergences
- ......
And there are plenty fundamental indicators, reporting a particular aspect of a company, or – in our case – of the whole US economy
https://www.investopedia.com/terms/f/fundamentalanalysis.asp
- Inflation
- PMI Purchasing Managers Index
- Labor market
- Housing market index
- Treasury Yields
- Financial/credit conditions
- Corporate profits
- .......
In the long term, the stock market goes in the same direction of economy,
it has always been like that in the whole history. So the stock market has a primary bias: it usually goes up, because technology usually does go up, population goes up, productivity goes up.
Humanity does not forget how to do things, and scientists/inventors have new ideas all the times. Even wars are just temporary stops to growth. After the disasters caused by war, humans restart improving their lives at a faster pace.
But this does not mean that stock prices will go up in a straight line: instant prices of stocks can be very far from a “correct” evaluation of companies / economy. So financial makets show bubbles, drops, bear markets.
The Hari Seldon Trader model picks some of these TA and FA indicators, which in the past (backtested from 1971 to 2019) showed when to exit from investment because of a higher risk of price corrections or bear markets.
Here’s the behaviour (= daily signals) of the HST model in last bear market 2007-2009. See how the model succeed in avoiding the worst part of dropping prices. This increased the average yield (compared to Buy and Hold) and reduced magnitude of drawdowns.
See that the Nasdaq went up and down from 2007 to 2012, but showed no significant improvements for 5 years (left scale).
During the same period the HST model performed a100% growth (right scale)
Daily update of the model’s signal
The HST model releases a signal on daily basis, suggesting to stay in one among three positions
- 100% Aggressive Long or
- 100% Moderate long or
- 100% Cash
The “original version” of the HST model applies 3 different investment tools, one for each position:
- 100% Long with $TQQQ*** or
- 100% Long with $UPRO*** or
- 100% Cash
But we there can be different variants of HST model that use different tools, with higher/lower risk and yields. They will be explained in another post.
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Having explained what is the HST model, let’s say now
What the HST model is not:
It is not a miracle-machine:
The model is not error-free. Sometimes it suggest to stay in, but an unexpected drops appears. Sometimes it suggests to go cash, but market still grow.
Nevertheless, here is the backtested behaviour of the model, if an investor applies the model since 1971, compared to the Nasdaq Composite index (note: logaritmic scale)
But pay attention: Past Performance is Not Indicative of Future Results. It is your choise to apply the model or not, and we take no responsibility about your choises about investments.
It is not predicting future
The amazing performances of the HST model do not mean that the model can predict future: we would better say that the model reacts to the markets moves (by TA) and to the changes in economy (by FA) and assumes that there will be a drop or a growth in prices
This worked in the past as per previous picture, but does not mean it will perform as well in future.
It is not assuring fixed incomes or gains
The performances of the model were very variable in the past (1971-2019). So nobody can expect to have a regular growth of the capital, when applying the model.
It is not assuring to skip all drops and drawdowns
We will show tha past drops and drawdowns. Sometimes there have been significant drawdowns. Investors should decide the right variant of the model, according to their own risk-profile, in order to be aware of the potential risks they are facing. Also in this case, past performance is not indicative of future results.
Let’s say that the original version of HST model showed a maximum drawdown of 55% during period 1971-2018. This does not mean that next drawdowns will not be higher than that.
It is not reacting in minutes / hours / days, It is not made for scalpers, short-term traders
The model releases signal once a day, after the close of the US market. The assumption is that the model is used by long-term investors (see here).
The model performances on our posts and website are merely simulations of the investments
The investors will autonomously decide if / when / how to apply the model: when to buy, what financial instruments to use. These personal operations can differ from the simulation shown and posted.
Commissions, fees, trading costs, taxes are not considered in the simulations.
The HST model is not designed for inexperienced investors
The model releases signal indicating to be Long with leveraged ETFs, which are risky instruments, operating in a risky environment as the stock market. Large losses are possible.
It is not suggesting to use specific financial instruments or ETFs
In the post we will mention some financial instruments or ETFs (as *** $UPRO, $TQQQ or others) but other similar instruments are available on the markets. Some are available in US market / European markets / Asian markets / Aus markets and show quite similar performances. The investors will choose autonomously which means or instruments they will use to apply the model in its variants.
If you have understood what the HST model is not, you can continue with this walkthrough, and discover a very interesting model for your long-term investment goals.
Stay tuned!
