The Primary Benefit of a Purely Mechanical Trading System

| March 22, 2011

Recently, several readers have inquired about the potential development of a Cyclical Trend Score (CTS) sell signal and asked if we believe the recent breakdown means that a long-term top is now in progress. While the abrupt decline from late February has caused the CTS to move down to a new low in negative territory, it remains well above sell signal territory.

It is important to understand that our Cyclical Trend Trading System is purely mechanical, meaning it provides definitive signals that leave absolutely no room for misinterpretation. The primary benefit of using a mechanical system such as this one is that it eliminates subjectivity from the signal identification process. The CTS has correctly identified more than 90% of the long-term turning points in the stock market, so it is very good at what it does. It is also very good at avoiding false positives. Therefore, we are careful not to make any judgments prior to a confirmed signal being generated. At this point, the recent breakdown is consistent with a developing long-term top, but it is still much too early in the process to draw any reliable conclusions. There will always be the urge to anticipate and enter trades early, but that is why it is so important to have a reliable mechanical system that does not suffer from any form of subjective bias.

Category: Commentary, Market Update


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