On our website at http://www.mipstiming.com/services we talk about and explain leverage and how to trade it, but we do not encourage it. On the other hand, we also do not discourage using "moderate" leverage trading for "some" investors. Of course, using leverage or not using leverage depends upon the risk tolerance of the investor. Many investors trade leverage with a just small part of their portfolio, and trade the bulk without leverage.
At any rate, we don't advise MIPS members to trade with over 1.5x leverage. BTW, you can trade 1.5x leverage for the SPY by trading 50% of your money in SPY (1.0x) and the other 50% in SSO (2.0x).
Below is a graph of MIPS3 trading various levels of leverage
- For myself, I mainly trade "Moderate Aggressive" below
- Of course, your choice is up to you
- MIPS3 is our original model with verified results all the way back to 11/04/2005
- And remember, the newest release of MIPS3 and MIPS4 (Blaster Series) are much better models
Trading SPY with various levels of leverage:
SPY with 1.5x / 1.0x (long/short) - Gold line --- Aggressive
SPY wtih 1.5x / 0.5x (long/short) - Green line --- Moderate Aggressive
SPY with 1.0x / 1.0x (long/short) - Light Blue --- *** Standard ***
SPY with 1.0x / 0.0x (long/cash) - Dark Blue line - Conservative (long-only)
SPY with Buy-and-Hold - Red Line --- Benchmark
< From TimerTrac.com >
From the above, it can be seen that the Standard strategy (light blue line) grew from $10,000 => $54,000; while the SPY with buy/hold grew to $18,000.
During that same time frame, the Aggressive strategy (gold line) has the highest growth rate of all ($10,000 => $88,000), but comes with higher volatility.
A happy medium for those who want to trade with some leverage would be to trade the Moderate Aggressive strategy ($10,000 => $67,000), which out-grows the Standard strategy with lower volatility (green line).
Paul Distefano, PhD
MIPS Timing Systems, LLC