Well, in my effort to "build a better mousetrap" I started playing around with various indicators and observing their success in determining the market direction both when the market is trending upwards, trending downwards and of course the worst scenario, when the market is trading sideways, (remember whipsaw?)

What happens in most of these trading systems is they always need secondary indicators to "confirm" a market move; something to really tell you that it is alright to either go long or sell your position and go to cash. The problem is that the more indicators you have, the more "watered down" your results become and the more uncertain you are when to pull the trigger. Two indicators may be telling you to buy into the market while the third is telling you to stay in cash. By the time the third indicator tells you to buy either one of the other indicators is going the other way, so you tend to get into a rally too late and you tend to not get out of the market soon enough.

Now, I am not saying that I get in at the bottom of every rally nor do I get out exactly at the top; NOBODY CAN DO THAT! Do you know anyone who gets 100% returns on their investments? If you have an indicator that is so sensitive you end up with a lot of "whipsawing" (love that term) where you make a move, only to quickly find it was the wrong move and then you have to switch again. (with my medical degree I can tell you there is the same situation in medicine where certain lab tests are so sensitive, they give you what is known as false positives where they are positive for a certain disease or condition and in reality you do not have the condition.) Click here for proof that I really have a medical degree.

Actually the indicator I use in my system* originally started out as a secondary or confirmation indicator for another indicator I was researching. By plotting this indicator against the movement of the Nasdaq I came to find that it was much more accurate than the primary indicator and thus that became the foundation for my system*. It is the only one that I use.

So, you must be thinking, if I could find it, how come nobody else did? Well, first of all who knows if anybody else is using it and secondly I modified the values in this indicator to arrive at my superior results. Since some of you reading this might be a little unnerved by the whipsawing going on, let me say this. I could adjust the values I use for my indicator which would decrease the amount of whipsaws that occur; the only problem is that it would also water down my returns. As an example, if you plot the movement of the Nasdaq with its 100 day moving average, you will almost certainly always be on the "right" side of the market but when you calculate what your returns would have been, via the cross-overs, you will be greatly disappointed. So, unfortunately whipsaws are a part of the game, but we are able to greatly reduce our potential exposure to losses. (Read on)

You may also be thinking that if I only use one indicator what if it is wrong at any given time and we enter or exit the market prematurely. In the system*, I have set up safeguards to limit these losses should they occur, but as you can see from my trade history, we have had minimal losses while being in the market during every rally and being safely on the side lines during every down trend.