The Contrarian Technical Index (CTI) is a high performance large cap equities timing model. It is unique from
the vast majority of price-only methods in that it does not rely on standard trend momentum or mean-reversion.
Simulations over the past 10 years show Long/Short spreads of 25.1%/Yr unleveraged with no negative years
(14.8% net). Long-Only return was 10.8%/Yr, a full 7.4%/Yr above benchmark, excluding dividends.
We now seek a quant or hedge fund manager that will verify these top tier results and use CTI to:
the vast majority of price-only methods in that it does not rely on standard trend momentum or mean-reversion.
Simulations over the past 10 years show Long/Short spreads of 25.1%/Yr unleveraged with no negative years
(14.8% net). Long-Only return was 10.8%/Yr, a full 7.4%/Yr above benchmark, excluding dividends.
We now seek a quant or hedge fund manager that will verify these top tier results and use CTI to:
- generate a stand alone portfolio and/or
- improve fundamental portfolio strategies and reduce market correlation (CTI has negative beta)
What is CTI?
The trader's lament, "The trend is your friend.. until it ends.. and then it bends", reflects how the excess return
from months of trend-following can be wiped out with just a few corrections. CTI turns this fact upside down and
capitalizes on these corrections.
A fund powered by CTI can now profit from (or avoid) the explosive reversals that tend to occur at the end of a
short term uptrend, downtrend or mean-reverting price pattern in individual stocks.
The Performance page on this site shows CTI to be a reliable predictor of price reversals. Also, that applying
CTI in a portfolio is potentially less volatile than Trend-Following and other main stream strategies. White
papers in the Research section support how various elements in this method identify turning points, and how
the effect of these signals can persist throughout CTI's 17 day average holding period.
The trader's lament, "The trend is your friend.. until it ends.. and then it bends", reflects how the excess return
from months of trend-following can be wiped out with just a few corrections. CTI turns this fact upside down and
capitalizes on these corrections.
A fund powered by CTI can now profit from (or avoid) the explosive reversals that tend to occur at the end of a
short term uptrend, downtrend or mean-reverting price pattern in individual stocks.
The Performance page on this site shows CTI to be a reliable predictor of price reversals. Also, that applying
CTI in a portfolio is potentially less volatile than Trend-Following and other main stream strategies. White
papers in the Research section support how various elements in this method identify turning points, and how
the effect of these signals can persist throughout CTI's 17 day average holding period.
| What Makes the Contrarian Technical Index System So Different? CTI signals occur when a security's trend is so obvious to the market that it won't continue. This contrasts with most Technical Analysis systems that signal 'go with the trend'. CTI is unique in that it does not assume that a price pattern will repeat. In fact, CTI signals are exactly opposite to an index of price-only trading systems. When these systems agree too much on what the stock should do, a contrarian signal is generated. CTI's breakthrough is in how it adjusts the threshold for what is an 'extreme' level of Technical Buy/Sell consensus for a stock in the current market conditions. In effect, CTI is a unique measure of the peaks and troughs in sentiment for individual stocks. |
Historic simulated or actual returns are not an indication of future results. Associated search terms for this web
site include alpha enhancement, contrarian technical indicator, contrarian technical signals, contrarian price-only
system, mean-reverting technical system, contrarian quantitative trading system, contrarian price analysis,
contrarian momentum, contrarian stock timing.
site include alpha enhancement, contrarian technical indicator, contrarian technical signals, contrarian price-only
system, mean-reverting technical system, contrarian quantitative trading system, contrarian price analysis,
contrarian momentum, contrarian stock timing.
The leverage normally granted to Long/Short funds has not been included. CTI signals were applied to a universe of the
previous year's top 2000 US stocks by volume traded. All CTI tests include de-listed securities to improve the simulation.
previous year's top 2000 US stocks by volume traded. All CTI tests include de-listed securities to improve the simulation.
"The trend is your friend, until it isn't." - Wall Street adage
Contrarian Technical Index (CTI)
Stock Timing & Alpha Enhancement Method
Stock Timing & Alpha Enhancement Method
Please also click the Method page for better process detail. And please don't hesitate to make contact if the logic and results of
CTI ring true and you have potential business interest.
CTI ring true and you have potential business interest.
Why Trend Corrections Are So Profitable
- Most studies of individual Technical Analysis (price trend) systems have poor performance. This is entirely due to
corrections that reduce trend-following performance to near zero over benchmark
- If viewed as an opportunity instead of a cost of doing business, the short term corrections of price trends can be highly
profitable because they are both rapid and large. Often reversing weeks of trend-trading profit in just days.
Even strong believers in trend trading might agree that if somehow all Technical indicators simultaneously had a Sell
on a security, it would be a sign that the trend is actually stale and vulnerable to an upward reversal (CTI Buy signal).
on a security, it would be a sign that the trend is actually stale and vulnerable to an upward reversal (CTI Buy signal).
CTI Buy signal flow-chart
The Squeeze Effect
CTI's use of a Technical trading systems index in a contrarian way (to signal a consensus of over-confidence in the trend)
appears to be unique from literature searches. CTI was developed based on the assumption that traders tend to compound their
bets as a trend is 'confirmed' by different technical/mathematical measures.
In the example above this can result in a short-squeeze effect and a rapid reversal upward. A large chunk of investment
strategies include some form of price momentum and a lack of liquidity can occur when these methods mostly agree.
CTI vs. Mean-Reversion
The most common reversal strategy is Mean-Reversion (M-R). This assumes that if a stock's price ventures out of an 'average'
range it will reverse back to that average. CTI's measurement of the sentiment of various price trading methods, rather than
simply calculating a historic normal price, is what makes CTI unique from classic Mean-Reversion.
Some consider M-R contrarian, however it uses pattern-recognition (wave pattern) just like any other trend strategy. Instead of
assuming a stock's price action will repeat, CTI was developed by tracking the Buy/Sell signals of 19 Technical Analysis based
trading systems. The goal was to sample the momentum systems embedded in most fundamental and technical strategies.
When too many of the systems in the CTI index read Buy or Sell for that stock, it indicates a peak in sentiment because the stock's
trend is too apparent and assumed by the market.
CTI's use of a Technical trading systems index in a contrarian way (to signal a consensus of over-confidence in the trend)
appears to be unique from literature searches. CTI was developed based on the assumption that traders tend to compound their
bets as a trend is 'confirmed' by different technical/mathematical measures.
In the example above this can result in a short-squeeze effect and a rapid reversal upward. A large chunk of investment
strategies include some form of price momentum and a lack of liquidity can occur when these methods mostly agree.
CTI vs. Mean-Reversion
The most common reversal strategy is Mean-Reversion (M-R). This assumes that if a stock's price ventures out of an 'average'
range it will reverse back to that average. CTI's measurement of the sentiment of various price trading methods, rather than
simply calculating a historic normal price, is what makes CTI unique from classic Mean-Reversion.
Some consider M-R contrarian, however it uses pattern-recognition (wave pattern) just like any other trend strategy. Instead of
assuming a stock's price action will repeat, CTI was developed by tracking the Buy/Sell signals of 19 Technical Analysis based
trading systems. The goal was to sample the momentum systems embedded in most fundamental and technical strategies.
When too many of the systems in the CTI index read Buy or Sell for that stock, it indicates a peak in sentiment because the stock's
trend is too apparent and assumed by the market.
CTI's Method
The Contrarian Technical Index (CTI) predicts the end of a stock's price pattern rather than its continuation. Signals do not wait for
the trend reversal to begin. Instead, a CTI portfolio is comprised of stocks who's reversal was predicted in advance.
CTI detects changes or Interruptions in a stock's trend by using an index that combines a proprietary mix of price-based trading
systems. Each systems' weighting in the index was based on its projected use by investors.
Measuring Sentiment
The Buy/Sell output of CTI's index of trading systems is used as a proxy for sentiment. For example, if systems in the index are
screaming Sell while a stock is downtrending, a reverse (Buy) signal may be generated (opposite to the index consensus).
Correct CTI predictions (profitable trades) occur over 60% of the time. The outperformance of CTI Long portfolios in down markets
indicates that trade entries occur when the stock has less far to fall. The same is true for the Short-Only version in rising markets.
The Contrarian Technical Index (CTI) predicts the end of a stock's price pattern rather than its continuation. Signals do not wait for
the trend reversal to begin. Instead, a CTI portfolio is comprised of stocks who's reversal was predicted in advance.
CTI detects changes or Interruptions in a stock's trend by using an index that combines a proprietary mix of price-based trading
systems. Each systems' weighting in the index was based on its projected use by investors.
Measuring Sentiment
The Buy/Sell output of CTI's index of trading systems is used as a proxy for sentiment. For example, if systems in the index are
screaming Sell while a stock is downtrending, a reverse (Buy) signal may be generated (opposite to the index consensus).
Correct CTI predictions (profitable trades) occur over 60% of the time. The outperformance of CTI Long portfolios in down markets
indicates that trade entries occur when the stock has less far to fall. The same is true for the Short-Only version in rising markets.
