ULTRA’s Recommended Strategies

At ULTRA our goal is to match mechanical strategies to the probable future market risk. This approach has served us very well since the beginning of the bear market in 2000. These are the strategies that we are currently recommending. Once you understand them, you will know more than 99% of all investors about market timing.

C_ULRND1- ULTRA Low Risk Next Day One

This strategy is defined by the CDF named c_ulrnd1.txt in your c:\ultra8 folder.

ULRND1 uses three seasonal systems, HDAY, SEAS2, and PERIOD with their Default Settings. Anytime one of these seasonal systems is on a buy signal, ULRND1 goes 100% long the SP500.

ULRND1 also uses two other systems that are somewhat selective about when they are invested, YROC and VOL. In the absence of seasonal buy signals, both of YROC and VOL are required to be on buy signals for ULRND1 to go 100% long.

We highly recommend that ULTRA users familiarize themselves with the five systems in C_ULRND1 via ULTRA’s Systems/Formulae.

An important aspect of this strategy is the usage of the ODE=1 option. ODE stands for One Day Early and is applicable in systems that are purely calendar based. Since HDAY, SEAS2, and PERIOD are all purely calendar based systems, they can optionally generate their buy/sell signals one day early.

Think about why this is important. Assume you are running ULRND1 in the evening via a Timing/Run All Composites after the market close on 9/15/03. For simplicity sake, you’d like your analysis to generate all the buy/sell signals that are to be acted upon the following day 09/16/03. Most systems are designed to trade on a Next-Day basis (YROC, VOL) but seasonal systems must be traded on a Same-Day basis to be profitable. Therefore, you can set the ODE=1 flag for the seasonal systems and a seasonal buy signal that would normally be generated on 09/16/03 will instead be generated after the close on 09/15/03 (one day early) clearly indicating that it should be acted upon on 09/16/03.

For HDAY, SEAS2, and PERIOD we also include the *ND so that in historical testing, the ODE=1 is counteracted by the *ND flag turning HDAY, SEAS2, and PERIOD back into same-day systems.

Historically from 05/09/78 to 09/22/03 trading the SP500, ULRND1 has returned +16.5% annually with very low risk. The largest account drawdown ULRND1 has ever suffered is only -10.8% back in 1997, while the SP500 took a massive -49.2% drawdown in 2002. Over the same period, buy/hold the SP500 has returned 9.8% annually.

C_ULRND2- ULTRA Low Risk Next Day Two

This strategy is defined by the CDF named c_ulrnd2.txt in your c:\ultra8 folder.

ULRND2 is an example of a very low risk strategy that scales its way into the market. It can be 33% long, 67% long, or 100% long if all four of the system are on buy signals.

Trading the SP500 (11/28/78 -09/19/03), ULRND2 has had 73% winning trades and a +13.0% annual return (compared to +9.6% for the SP500. The maximum account drawdown has only been -7.7% (compared to -49% for the SP500).

If one wanted to take some additional risk with a strategy like ULRND2 they could trade a fund like Rydex Nova which returns 1.5 times the return of the SP500. This can be tested via ULTRA’s Timing/Historical Analysis (Composite Strategy) by setting Long Position Beta to 1.5. If ULRND2 were trading a 1.5 beta fund like Rydex Nova it would have returned 17% annually while still producing a maximum drawdown of only -11.5%.

We highly recommend that ULTRA users familiarize themselves with the four systems in C_ULRND2 via ULTRA’s Systems / Formulae.

C_UMRND1- ULTRA Medium Risk Next Day One

This strategy is defined by the CDF named c_umrnd1.txt in your c:\ultra8 folder.

UMRND1 has historically (5/7/86 to 9/19/03), returned 17% annually with a maximum drawdown of -8.5% on 8/28/98. UMRND1 trades about 10 times per year with 68% winners, and is invested 43% of the time. While UMRND1 is invested, the account appreciates at a 34% annual rate.

Again, taking some additional risk with a fund like Rydex Nova would have returned over 23% annually with a maximum drawdown of less than 12%.

We highly recommend that ULTRA users familiarize themselves with the seven systems in C_UMRND1 via ULTRA’s Systems/Formulae.

C_UMRND2- ULTRA Medium Risk Next Day Two

This strategy is defined by the CDF named c_umrnd2.txt in your c:\ultra8 folder.

UMRND2 is a very simple system. Historically, This is a strategy that has (1/27/86 to 9/19/03), returned 16.6% annually with a maximum drawdown of -10.2% on 12/04/87. UMRND2 trades only a couple times per year with 91% winners. While UMRND2 is invested, the SP500 appreciates at a 28% annual rate.

We highly recommend that you familiarize yourself with the three systems in C_UMRND2 via ULTRA’s Systems/Formulae.

C_RUTVOL- NDX Trading Strategy

This strategy is defined by the CDF named c_rutvol.txt in your c:\ultra8 folder.

RUTVOL uses the Original settings of the RUTTR systems and the VOL system. Both must be on buy signals for RUTVOL to go 100% long. As you can see RUTVOL uses the @INDEX overrule to force a Timing/Historical Analysis (Composite Strategy) to trade the Nasdaq 100 Index which is why we consider RUTVOL to be a High Risk strategy. RUTVOL also works well against the SP500 which would turn it into a medium risk strategy.

Historically, RUTVOL has produced 70% winning trades and returned 23% annually, which is much higher than buy/holding the NDX. The maximum drawdown has been only -21% compared to -83% for buy/hold the NDX.

We highly recommend that ULTRA users familiarize themselves with the two systems in C_RUTVOL via ULTRA’s Systems/Formulae.

C_U8NDX1- NDX Trading Strategy

This strategy is defined by the CDF named c_u8ndx1.txt in your c:\ultra8 folder.

C_U8NDX1 uses five ULTRA systems:

· FNDX8 – Exponential moving average based system using NDX closing prices.

· LHD2S – A system that uses NYSE new lows, new highs, and declines.

· COT1 – A system that uses the SP500 Commitment of Traders commercial longs and shorts data.

· PENTAD- A trend following system uses various stock market indexes, breadth, and interest rates.

· SNBM – A simple Nasdaq volume system with original parameters.

C_U8NDX1 goes 100% long if three or more of the systems above are on buy signals. Otherwise, C_U8NDX1 goes 100% cash.

Historically, from 12/15/86 to 12/31/03 trading the NDX on a next-day basis, C_U8NDX1 has

· Returned +26% annually with 63% winning trades

· Suffered a maximum drawdown of only -18% compared to -83% for buy/hold the NDX

C_U8NDX2- NDX Trading Strategy

This strategy is defined by the CDF named c_u8ndx2.txt in your c:\ultra8 folder.

C_U8NDX2 uses four ULTRA systems:

· AIBB – Simple system using AAII bullish and bearish percentages.

· FNDX9 – A system that uses NYSE new lows, new highs, and declines.

· FNDX3 – A system that uses the SP500 Commitment of Traders commercial longs and shorts data.

· SNBM – A simple Nasdaq volume system with low-risk parameters.

C_U8NDX1 goes 100% long based on how many of the systems above are on buy signals. Otherwise, C_U8NDX1 goes 100% cash.

Historically, from 08/23/87 to 12/31/03 trading the NDX on a next-day basis, C_U8NDX1 has

· Returned +21% annually with 73% winning trades.

· Suffered a maximum drawdown of only -15% compared to -83% for buy/hold the NDX.

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