In continuation of last week’s feature on Pair Grid, this week we have illustrated how to combine systems. The pair grid system is built on performance. The horizontal row of assets is the top ranked performers among 120 global assets and the vertical row of assets contains the worst ranked performers. The Orpheus premise is that performance is cyclical and the best ranked will underperform and the worst will outperform. Hence a trader or investor is best advised to look at buying (accumulating or holding) from the vertical grid and selling (reducing) from the horizontal grid.

Now of course this may work well for an investor with a multi month holding period. Especially for the investor who is looking at relative outperformance against a group or universe of assets not just trading gains. He is also the one with a lower risk profile and is not leveraged. For the leveraged trader who is running naked trades the pair grid system needs further reinforcement. How do we do it? We combine an anticipatory and a trending system. The anticipatory system warns of an impending reversal while the trending system avoids a premature exit from a large trend.

The Orpheus trending system is about combining three degrees of time. The system goes long (+A) when e.g. all of 5 min, 10min, 30 min ROC are positive and vice versa. This simple system can be designed as a binary model which moves from +1(Long), 0 (Neutral), -1 (Short). This makes it a confirmation system, which can let a trader remain on the trend and also avoid too many entry or exits. LOSO (long only, short only) as we call it can be designed for any holding period (sub minor, minor, intermediate, primary etc.). The system is scalable and can be designed for any asset class. Since LOSO has three time frames, it has slower entries and sensitive exits. Think about it as Martin Pring’s ROC3 indicator mentioned in ‘Pring on Momentum’. LOSO can be built on momentum, moving averages and even candlesticks (remember the 4 week rule).

Now that we have a trending system we add the Orpheus Rieki (performance cycles) to it. Rieki is the dynamic form of the pair grid for one asset or a pair. Rieki is a banded indicator that moves from 0% to 100% marking reversals in performance.

So this week the pair grid threw many opportunities to buy and sell viz. Cotton, Tin, Corn, Dupont, Coffee, Caterpillar, AIGA agricultural Index, Soyabean and Grains as a part of the horizontal top row and NGAS, AIGE (energy  index), HP, Microsoft, Alcoa, Nikkei, J P Morgan, Pfizer, Merck and SSEC (Shanghai Index) on the vertical worst performer side. The trending LOSO was positive for Microsoft and AIGE Energy Index suggesting us to buy the worst performers. Microsoft and AIGE also had bottoming Rieki. The filters have pinpointed assets which I would like to chart.

Mukul Pal, CMT, Orpheus Capitals, Global Alternative Research