Sand2Pirls Market Signal

 

Frequently Asked Questions (FAQ)

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Q: What do you mean by "Three Phase" or "Two Phase"?
A:  By "Three Phase" we mean upward, downward or sideways market price movements which suggest taking more Long positions in upward trends, Short positions in downward trends and staying on the sidelines or using various options strategies during sideways market movement. Upward or Downward market direction calls are "Two Phase."
        Sand2Pirls does not consider cash stop loss signals generated by percentage movement against a Long or Short (Up or Down) signal to be a true three phase signal. We use a more dynamic approach to sideways trend determination. Our "Out" periods are almost always due to more than immediate price movement reversal of the previous trend. An up or down trend can be followed by trend direction reversal or sideways movement. Sideways movements may have varying degrees of price modulation.
Q: I've often seen "Buy", "Sell" or "Hold" ratings. Are these the three phases?
A:  No. "Buy", "Sell", and "Hold" ratings are for individual stocks. Our "Long", "Short" and "Out" signal is for the entire market which would take precedence over individual stock "Buy", "Sell" or "Hold" ratings. For instance, we do not recommend maintaining most "Long" positions during an "Out" period, since you may experience significant losses even before the trend direction turns down and changes to "Short".
Q: What do you mean by Dn, Up, Long, Short, Out? How does your 3 color logo show your signals?
A:  For the 2-phase signal we use "Dn" for Short or Sell and "Up" for Long or Buy. For the 3-phase signal, we use "Long" for Long or Buy, "Short" for Short or Sell and "Out" for Cash. Members choose when to use the more aggressive 2-phase or the more conservative 3-phase signal. A call such as "Dn/Out" means that the 2-phase signal is "Short" and the 3-phase signal is "Cash".
        There are four signal possibilities at any given time. We represent them graphically as shown below. The middle bar of the graphic is the 3-phase signal. The outside direction pointers are the 2-phase signal.
        =Up/Long    =Up/Out    =Dn/Out    =Dn/Short
        We use a blinking indicator for Entry points.
        =Up/Long - Entry    =Dn/Short - Entry
Q: What if I start my subscription after S2P Market Signal has already signaled the beginning of a trend?
A:  We advise waiting for an Trend Entry point or signal change to increase the odds of your success. A trend can have multiple 'Entry' points which indicate the trend is likely to be sustained.
Q: What do you mean by "Consolidation" or trend "Entry"?
A:  Trend "Entry" calls indicate increasing trend strength usually accompanied by increased volume. They show when it may be a good time to get in a trend or increase position strength. Conversely, "Consolidation" trend quality calls indicate weakening trend which usually counter trend price movement on higher volume. During trend "Consolidation" may be a good time to take partial profits. (We distinguish between a "pull-back" on lower volume and price "Consolidation" on higher volume.)
       
How you use these trend quality calls will depend on the behavior of the stocks you have selected. We recommend you take a look at the trend quality calls as well as the signal itself when back testing your stock selection strategies.  When price consolidation occurs over more than one week, end of trend or trend reversal becomes more likely.
Q: Are your signals independently verified?
A:  Both our 2-phase and 3-phase signals are TimerTracked since 11/7/05. Our first signal change since that date was 1/3/06.
Q: Why is S2P Market Signal so inexpensive compared other market signals?
A:  We're glad you noticed! The fact that we charge less than half of what some of our competitors do is certainly not because our signal is inferior. We developed S2P Market Signal for our own trading, but charge for it because 1) our testing shows it compares very favorably to other commercial timers and 2) we've noticed that free, openly available market strategies tend to loose their effectiveness as their usage becomes widespread.
        Our desire is to put superior market timing easily within the reach of the average amateur investor. Our streamlined business practices minimize the cost of delivering our high quality signal to you.
Q: Is the S2P Market Signal robust? Will it perform well in the future and under a wide variety of market conditions?
A:  Because we apply proven principles of technical analysis using our unique logical, rule based prioritization methodology, we believe that S2P Market Signal will perform robustly in the future. We've found by direct observation (not computerized "data mining") that some principles of technical analysis work better under some conditions than others, and without using moving averages, we give more weight to those technical principles that have an historical association with market conditions most similar to the current market environment.
Q: Is your signal compatible with IBD's CANSLIM stock selection methods?
A:  Yes. In fact it was Bill O'Neil's statement that three of four stocks follow the trend that gave us the desire to search for a clear mathematical definition of "the trend".
Q: What does the name 'Sand2Pirls' mean?
A:  The company was founded by two people with the last name 'Pirl' which is pronounced the same as the 'pearl' gem produced by oysters from a grain of sand. The word-play implies that something small and irritating (the grain of sand) can become something beautiful and valuable (the pearl.) We put it in a picture for fun.
Q: Who can benefit most from the S2P Market Signal?
A:  We believe everyone interested in trading and investing can benefit from using the our three-phase signal because understanding the market trend is the the most important factor when investing or trading securities. Among those who can benefit most are those with limited investing capital, those who have difficulty with higher draw-downs of two phase signals, those with limited time to watch the market, and those who in the past have had difficulty in the market without using a timing signal.
Q: What if I don't Short or use options?
A:  In our opinion it would be best not to hold most Long positions during a downtrend or sideways market movement, so the S2P Market Signal will help you maximize profit from your Long positions.
Q: Is the S2P Market Signal predictive or trend following?
A:  Trend Following. Learn more.
Q: Is the S2P Market Signal purely mathematical, or are there some discretionary elements?
A:  Purely mathematical.
Q: Since the S2P Market Signal only changes on weekends is it fast enough? Does it ensure that I get into the market in the early stages of a trend?
A:  Our studies show that many mid week fluctuations tend to be resolved by the weekend. The S2P Market Signal model uses this natural market rhythm as a key feature in its analysis. For this reason, the S2P Market Signal can actually be more responsive than many daily signals which may react prematurely in the wrong direction in mid week and do not recover until sometime the following week or later after our signal has already identified the trend. In addition, S2P Market Signal is sensitive to trend strength. If the trend is strong, our model will detect it more quickly than if the trend is weak. Quicker signals (usually dependant on moving averages) can be more prone to "whipsaws" -- getting in just when the trend is ending or beginning to reverse.
Q: Is the S2P signal immune from "whipsaws"?
A:  Not completely. However, the fact that the S2P signal does not depend on moving averages helps greatly. In addition, we have a special algorithm which recognizes conditions under which whipsaws are likely to occur, and in the 3-phase model, a "Long" or "Short" trend change is not generated until these conditions have passed.
        Remember that even within a strong trend, the market does not move just up or down. Expect that there will be counter-trend moves within the trend. The Sand2Pirls Market Signal will help keep your focus on the larger trend. A signal change only occurs if the counter-trend move is sufficiently strong.
        Note that due to our fairly sensitive top and bottom detection algorithms, market movements known as double bottoms and double tops can cause signal whipsaws. Historically these occur rarely enough that weakening our top or bottom detection algorithm to avoid them would be an overall loss.
Q: Do you use Fibonacci and Elliot Wave theory in your analysis?
A:  We don't use Elliot Ware counts, but we do make use of Fibonacci retracement principles at certain points in the S2P Marker Signal model.
Q: Your signal is based on a capitalization weighted (cap weighted) index, the NASDAQ Composite. I know that the rise or fall of a cap weighted index doesn't mean that the majority of the stocks in that index are going up or down. Wouldn't it be more appropriate to use an equal weighted index or a market breadth indicator like the Advance/Decline ratio to identify a trend?
A:  We have found the the clearest way to identify the early stages of a trend is to measure whether money is flowing into or out of the market. This is what a cap weighted index gives us that equal weighted indices and market breadth indicators do not. After a trend has begun, these other measures can help us determine the health and characteristics of the trend, but they are not particularly useful in detecting the early stages of a trend.
Q: Your signal is based on the NASDAQ Composite index and I see that your Comparison Test uses QQQQs. Should I trade mostly NASDAQ stocks or the QQQQ ETF? What securities perform best with your signal?
A:  We use the NASDAQ Composite Index to generate the Sand2Pirls Market Signal, because we agree with many who have determined that in recent years it tends to lead the general market trend whichever direction that might be. This means that you might actually profit more from trading securities that are market followers rather than leaders, because you will tend to capture more of their upward or downward movement with the S2P Market Signal.
        Bill O'Neil of Investors Business Daily states that 3 of 4 stocks eventually follow the trend. We believe that security (stock, Mutual or Exchange Traded Fund) selection should always be considered within the context of the market direction and with a good estimate of maximum acceptable draw-down. This means that security selection is actually a lower priority than determining market direction and risk management analysis. Getting lost in the maze of security analysis while loosing sight of market direction and risk analysis is a major reason for the market losses of many individual investors and traders.
        In addition to the S2P Market Signal, Sand2Pirls also offers Real Time Stock picks as a service available to members for an additional $24.95 monthly. Links to our 2005 Real Time Portfolio Reports are available from our How-To page.Sand2Pirls also offers a Members Area Bulletin Board facilitating an environment where members can learn investing and trading strategies from one another.
Q: How does your signal compare with others?
A:  Our testing shows that our two-phase signal performs at least as well as well as other two-phase signals. Our three-phase has a lower rate of return but has lower drawn down by being "Out" when the market is less clearly trending.
        We make our historical signal dates easily accessible and encourage you to test these dates against others and select the signal which gives you the best results and suits your trading style.
        To clearly show the advantages of using the S2P Market Signal, we have prepared a graphical comparison to several other popular market signals.
Q: If I use your weekly signal, should I trade weekly?
A:  Holding winners through the trend or until price consolidation will usually produce better results than replacing all stocks weekly. Stocks that don't follow the trend can be let go and replaced at trend entry points.
Q: Since the signal is generated over the weekend, should I trade on Mondays only?
A:  No. You can look for optimal entry and exit points during the week. We provide a members area bulletin board to promote an environment where we can learn from one another and to facilitate discussion of various techniques and strategies such as the use of candlesticks for daily timing, stock selection, risk management, etc.
Q: I've seen that your "Out" periods can last many weeks. I'm an active and experienced trader and believe I could make money in the market during these periods. I don't want to be on the sidelines. How can the S2P Market Signal help me?
A:  Use the "Dn" and "Up" 2-phase S2P Market Signal, but also keep the 3-phase signal in mind. Recognizing that the market is moving sideways gives you a significant advantage. You might choose to use option spreads or profit from recognizing trading ranges of individual stocks.
Q: Is the S2P Market Signal based upon any proprietary information sources?
A:  It is not.
Q: Will you ever make changes to your signal calculations which you only apply forward and not to historical dates?
A:  We will never do this! When we make a modification to S2P Market Signal calculations that alter historical dates, (including potentially basing the signal on an alternate index), we apply a versioning system to the signal and make archives of the old signal available. S2P 3.2 improved trend shift detection accuracy by adding weekly price direction criteria to trend exit threshold. S2P 3.1 added intra-week linear regression analysis for confirmation of the start of a new trend. S2P 2.2 added a top detection algorithm. S2P 2.0 increased the sensitivity of early trend detection. S2P v1.1 decreased the length of several "Short" periods and increased overall profitability.
        Why do we make changes to our model? See our explanation on the Historical Signals page.
Q: Please explain how stock market investing works.
A:  Scott Adams sums it up best in this Dilbert cartoon. Sunday May 2, 2004 Dilbert by Scott Adams Don't worry. Except in having the same first name, no one at Sand2Pirls resembles Donald Trump!
Donald Pirl

If you have additional questions, please email info@s2pmarketsignal.com.

 

Videos


The Importance of Market Timing (1:37)


The Design of S2P Market Signal (1:56)


The Three Elements of Stock Investing (1:02)


Beyond Stocks for Experienced Investors (1:02)

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