Trading Systems  |  NOV 2001

Trade Sector Funds With Pure Momentum by Jay Kaeppel

Trade Sector Funds With Pure Momentum by Jay Kaeppel In the July 1999 Technical Analysis of STOCKS & COMMODITIES, I wrote about one of the systems I use to trade Fidelity Select sector funds. That system was referred to as the relative strength system (or RS System for short). In this article, I will discuss another system that I use for trading sector funds. This one is referred to as the pure momentum system (or PM System). Like the RS System, the PM System holds a portfolio of up to five sector funds at any time. Because the PM System is similar to the RS System, the results tend to be highly correlated. In fact, there is usually some overlap between the funds held by both systems. Both systems make the bulk of their money by latching onto the strongest sectors and riding them, and so this high degree of correlation is not necessarily a bad thing. But it does mean that you must be willing to live with a certain amount of volatility. If not for the favorable trading results, the pure Can you trade mutual funds once a month, never cut losses, and still make a lot of money?

by Jay Kaeppel