How To Use The Model

Welcome to the Big View Alpha Rotation Trading System

This page is the best place to begin. Here you’ll find:

  • A brief overview of what this trading system is all about
  • Precise instructions on how to follow along and trade the model
  • And more!

Introduction to the Big View Alpha Rotation Trading System

The Big View Alpha Rotation trading system uses trading signals generated by a quantitative strategy developed by MarketGauge around a select group of Big View indicators. In addition to the condition of the indicators, the strategy requires additional market phase and market condition confirmations to generate new signals and position changes.

There are a limited number of different positions that the strategy can hold. The standard (non-stops & targets) "Alpha Rotation" model can either be:

100% in Index
50% in Index and 50% in TLT
100% in TLT
100% in cash.

The Alpha Rotation trading system has three main variations that focus on the S&P 500, NASDAQ 100, or Russell 2000 indexes. The S&P 500 is the base model while the NASDAQ 100 and Russell 2000 requires a product upgrade to access.

Within each Index, there are three versions that apply different leverage and risk levels.

The “SPY 1x” model uses the standard instruments with stops and targets (SPY & TLT).

The "SPY 2x" model uses SSO (2x) instead of SPY and TMF (3x) instead of TLT. It also uses stops & targets that are based on percent moves in the underlying standard instruments (SPY & TLT).

The "SPY 3x" model uses SPXL (3x) instead of SPY and TMF (3x) instead of TLT. It also uses stops & targets that are based on percent moves in the underlying standard instruments (SPY & TLT).

The NASDAQ 100 Alpha Rotation model uses QQQ, QLD (2x), and TQQQ (3x) ETFs. The Russel 2000 Alpha Rotation model uses IWM, UWM (2x), and TNA (3x) ETFs.

The general idea is that the relationship and status of a select group of Big View indicators will keep you on the right side of the market. The Big View Alpha Rotation trading system is an extension of this that adds in additional market phase and condition confirms to generate the trading signals. When the bullish conditions exist, the model will generally be long the index or “SPY” and when the bearish conditions exist, the model with either be in cash or if the right conditions exist in “TLT”, it will be in “TLT”.

During some transition periods, depending on the conditions in both the Index (SPY, QQQ, IWM) and TLT, the model might be in both (50% SPY and 50% TLT). This is generally a transition period and it's uncommon to hold both for an extended period of time.

Alpha Rotation and the Use of Leverage: Choose Your Risk Level

The basic “Alpha Rotation” strategy is what generates the core trading signals. As we covered earlier, the model will generally have you in either in the Index, TLT, both (50/50), or cash. The signals have proven timely and generated a lot of outperformance merely by timing the entries and exits out of these baseline ETFs. However, with the availability of 2x and 3x ETFs, we can very easily add leverage to our portfolio. The “1x” “2x” and “3x” models all also use protective stops and profit targets.

The “Alpha Rotation SPY 2x” and “Alpha Rotation SPY 3x” strategies take the “Alpha Rotation SPY” signals and substitutes different ETFs. The basic allocation is the same for all the three leverage variants (S&P500 / Treasuries / Cash). The timing of the signals is the same. The only difference is the substitution of different symbols.

The models give you flexibility as to the amount of risk you want to take trading this strategy. The 2x and 3x models typically have higher performance but at the cost of added volatility and drawdown potential. For example, the 1x model uses an initial 6% stop. If that stop is hit in the 1x model, the 2x model will typically take around a 12% loss while the 3x model could hit an 18% stop. If you chose to trade one of the leveraged models, it is important to understand the added risk and position-size your portfolio so that you can stick with the models through their natural swings.

Executing Protective Stops and Profit Targets

The initial stop loss levels are 6% for all the 1x model positions (SPY, QQQ, IWM, TLT).

When any of the models hits the first target, it sells 25% or one-quarter of the initial position. At the second target, the model sells an additional 25% (or 1/3rd of remaining). At the third target, the model sells another 25% (or ½ of remaining). There is no final target. The model will exit the final remaining 25% when the model gives us a signal to exit or rotate out.

When the model hits a stop, it sells out of the full or remaining position in that ETF. Additionally, after the model reaches any profit target, it moves up the trailing stop. After the first target, the stop is moved to the Index (SPY, QQQ, IWM) or TLT break-even entry price. After the second target, the stop is moved to the first profit target. After the third target, the stop is moved to the second profit target.

All stops and targets are based off of price levels in the underlying instruments (SPY, QQQ, IWM, & TLT). For the leveraged 2x and 3x models, due to minor tracking differences between the underlying and leveraged instruments, we cannot provide exact stop or target levels. The 2x and 3x model will execute 2x ETFs and 3x ETFs profit targets and stops when the primary index hits the designated level. The same goes for executing TMF trades using the pricing of TLT.

Alpha Rotation SPY 2x

The “Alpha Rotation 2x” substitutes “SSO” for “SPY.” SSO is an ETF that attempts to get twice the daily performance of the S&P 500. So if the S&P500 is up +0.5%, SSO will typically be up around +1.0%. Since the performance goal is a multiple of the daily return, the effects of compounding will mean that the performance skew between SPY and SSO will be different than a simple 2x multiple over longer periods of time. The “Alpha Rotation 2x” also substitutes “TMF” for “TLT.” TMF trades like a 3x leveraged version of TLT. There is not a good 2x TLT substitute.

The “Alpha Rotation 2x” model uses the 2x SSO and 3x TMF instruments instead of the underlying 1x SPY and 1x TLT. This model also employs the stops and targets we covered above, however, since the stops and target levels are based on the SPY and TLT, you will not be able to put in precise stops and targets ahead of time. Rather, the 2x model will execute the stop or target when SPY or TLT hit the designated level. Some brokers have order types that will execute a trade in one symbol based on the price of a different symbol.

Alpha Rotation SPY 3x

The “Alpha Rotation SPY 3x” substitutes “SPXL” for “SPY.” SPXL is an ETF that attempts to get three times the daily performance of the S&P 500. So if the S&P500 is up +0.5%, SPXL will typically be up around +1.5%. Since the performance goal is a multiple of the daily return, the effects of compounding will mean that the performance skew between SPY and SPXL will be different than a simple 3x multiple over longer periods of time. The “Alpha Rotation SPY 3x” also substitutes “TMF” for “TLT.” TMF trades like a 3x leveraged version of TLT.

The “Alpha Rotation SPY 3x” model uses the 3x SPXL and 3x TMF instruments instead of the underlying 1x SPY and 1x TLT. This model also employs the stops and targets we covered above, however, since the stops and target levels are based on the SPY and TLT, you will not be able to put in precise stops and targets ahead of time. Rather, the 3x model will execute the stop or target when SPY or TLT hit the designated level. Some brokers have order types that will execute a trade in one symbol based on the price of a different symbol.

Quick Start: Starting A Portfolio

You can start at any time. The “Open Positions” will always show the current allocation. Since the model is “on-going” and we never know how long a trade will last, we recommend that members get started at any time. Normally, the model initiates and makes all position changes on the open. All alerts are issued the night before.

For the standard “Alpha Rotation” model, if the model is long 100% SPY, you would put all the capital you have allocated to the strategy into the “SPY” ETF.

If the model is in 50/50, you would put half the initial capital in SPY and half in TLT ETFs.

If the model is long 100% TLT, you would put all the initial capital into TLT.

If the model is in cash, you can wait with it for a next trading signal.

The 2x and 3x versions of the model substitute SSO/SPXL for SPY and TMF for TLT. You can see the holding for each model by going to that model's specific page in the sub-navigation.

The 2x and 3x versions add the additional complication of the profit taking.

The “Allocation Percentage” column in the open positions shows how much of the total portfolio should be allocated to that position. If the number reads 100%, then 100% of the total portfolio is in that position. Due to position allocations you can have different percentages in each position but the “Position Percentage” column should always add up to 100%.

The “Position Percentage” column shows how much of the allocation is currently in each position. For instance, if the SPY 1x model was fully allocated to SPY and recently hit the first profit target, the Allocation Percentage will be 100% in SPY and the position percentage will have 75% in SPY and 25% in cash.

The “open positions” also has a section that tells you how many shares to buy of each for a sample $5,000 portfolio. This provides a quick and handy way to see how many shares. If you are trading a multiple of $5,000, its easy to double or triple or cut in half the number of shares. For instance, if the calculator says to buy 20 shares for a $5,000 portfolio, you would need to buy 40 shares for a $10,000 portfolio or 10 shares for a $2,500 portfolio.

The “Shares per $5000” column will accurately tell you how many shares for each of the instruments per a $5,000 investment increment. This includes any profit taking from on-going positions.

Keep in mind that to take advantage of compounding, you will need to increase or decrease your trading amount based on how the trades perform. For instance, if you were trading $5,000 and made 5% on the first trade, you would now need to base position sizing on $5,250.

To manually calculate the shares, just take the position percentage and multiply by your custom portfolio size. For instance, if you have a $10,000 portfolio and 50% of its in SPY right now, you would take the $10,000 x 50% = $5,000. Then you will that $5,000 and divide it by the current price of the instrument you are entering. If SPY was at $250, you would take $5,000 and divide it by $250 to equal 20 shares of SPY.

You can perform similar calculations for whatever the position percentage is or just use the “shares per $5,000” column value and scale it up or down to your custom portfolio size.

Trading Alerts & Position Updates

Every day after the market closes, the model will calculate the indicator values and other variables and determine if there are any position changes. You will then be notified by email (and text if you opt-in) when any position changes occur. All updates will be sent out in the evening and potential position changes are made on the open the following trading day.

The average trade lasts about 55 calendar days, through they can be anywhere from a few days to several months depending on market conditions.

Placing Orders at the Open

If you would like to place orders before the market opens and get the "open" price you should use an order called "Market on Open". Each broker or trading platform may have a slightly different name for this type of order so check with your broker if you are not familiar with it.

This order is generally placed 5-10 minutes before the open and gives you the “open” price. The open price is determined by a process where the pre-market open orders are evaluated by specialists which determine the market clearing price at the open. You may also place market orders immediately after the market opens to enter these orders. Your entry should typically be very close to the one described in the model.

Advanced Execution Using the Opening Range

For more experienced traders familiar with the Opening Range concept, using the opening range, particularly for exits, can sometimes result in better execution prices. For instance, if the model issues an exit signal for the open the next day, rather than exiting on the open, you can wait to exit on a 5-min or 30-min opening range breakdown. If no breakdown occurs, you can manage the position in a variety of ways including exiting end of day or using those levels as a new stop that could be ratcheted up.

This execution requires you to be able to monitor the markets in real-time. Depending on the market action, this methodology can improve or hurt your results. As you are waiting for the opening range to come in, any time that range gets broken to the downside, it results in worse execution prices than the open. The primary benefit of using the opening range in this context is that is gives you the opportunity, if available, to get out at a better price than the open.

Using the opening range is completely voluntary. All of the model performance shown uses execution using the opening price. Furthermore, we have not outlined here a full rule set for how to use the opening range. Unless you are familiar with the concept of the opening range, we recommend you use the standard opening price trade execution.

When and how often will I receive trade alerts?

The model generally doesn’t generate frequent trading signals. The average trade length is around 55 days, though we can have trades more frequent than that since the model, depending on market conditions, will sometime leg in or leg out of trades in two steps.

All trade alerts are sent out the evening prior to any position changes and they will include all the necessary instructions to follow along with updates on the website model portfolio and position updates page.