I am sure you realize that what goes into the KT Number is proprietary. Each day I mathematically calculate a number that represents the trend of the market for that day. The metric is cumulative so you will be able to see the trend developing. I do this for the NASDAQ and the Russell 2000. As a subscriber, I will be sending you a newsletter every Monday and Wednesday, which shows you the readings for every day in that week. When the KT Number issues a buy or sell signal I will send you an e-mail on that day. That way you can go ahead and enter your buy or sell order for the next day’s market open. For the KT Number, I need to see a reading of positive .2% of the market’s close to get a buy signal and negative .2% of the market’s close to get a sell signal. This is for the NASDAQ as well as the Russell 2000. At today’s market levels this would be equal to around a + or – 30 for the NASDAQ and a + or – 4 for the Russell 2000.
When I issue a buy signal on the NASDAQ, for example, the KT Number can go as high as it wants. I’ve seen it go as high as +64 in a very powerful sustained up market, like back in the dot com bubble of early 2000. It can also go just as low after a sell signal. I’ve seen it go as low as -122 in a bearish market crash, like when the dot com bubble burst in 2000.
But we do not sell or buy until the KT Number tells us to. This is very important because we have seen it get very close to sell signal levels and then rebound. So it acts as a filter to avoid frequent unnecessary signals.
Since 1971, the KT Number has averaged 3 buys and sells per year, so it identifies intermediate trends. You can see the historical results here. Note the number of signals each year and particularly note the number of days that you would have been in and out of the market. If you are familiar with any good or bad years, you will see that the KT Number keeps us in up markets, and more importantly, keeps us out of major drops in the market. This is the main goal of the KT Number; capital preservation. Trend following does not get any better than this. While the market is going down, you are on the sideline not losing your hard earned capital and while the market is going up you’ve got your capital at work.
You can also see that not every year is a good year. This is to be expected. There is no system out there that makes money on every trade. If someone tells you this, you need to run the other way. Since 1971, there have been 13 years that we have lost money on the NASDAQ. This is about 1 in 4. However, you’ll notice that the average losing year is only around 14%, while the average profiting year is around 63%. This is just another reflection of staying in with a winning trade and cutting the loss short when a trade goes against us.