FAQs | Suggested Reading | Trend Following

Frequently Asked Questions about our Service

Who is ARTS?

Absolute Return Trading Systems (ARTS), Inc. is a market timing service providing paid subscribers trading instructions generated by our top ranked, authenticated market timing system. The system, designed by a team of researchers over more than a decade, is designed to produce positive returns in both up and down markets. ARTS provides performance and risk information on 43 exchange traded funds (ETFs) and 21 stock market indices and has consistently been a top-ranked market timing service as measured by the leading third-party performance verification service, TimerTrac (www.timertrac.com).

How will I be notified if I need to make a trade?

At the end of each trading day, ARTS Inc. updates the closing data from the markets and enters them into our proprietary software which then determines if a new trading signal has been generated. If there is a new signal, the instructions are sent to you, our subscriber, via email. Every email you receive will provide clear instructions on what action needs to be taken. Signals are always sent well before the next market opens so that you have ample opportunity for order placement.

What should I do if I am in-between signals when I sign up?

When you sign up, you will obtain access to our current signal. We recommend that you begin investing at the next signal. The reason for this is that every trade that is entered has an exit point which is calculated on the entry price. This is designed to control the risk of every trade. If you enter a trade mid-signal, the exit point may be further away than the entry point, thereby making the trade potentially higher-risk.

How long have the signals been live?

The signals have been live since June, 2007.

What is the difference between the Aggressive Growth Strategy and the Growth Strategy?

The Aggressive Growth Strategy employs the use of long, short, and cash positions. The Growth Strategy does not engage in short positions - only long and cash positions.

May I see a sample of the signal notification you e-mail to your subscribers?

Yes, please click here to see an example.

How often is your performance data updated on the website?

Our peformance data is updated approximately every six to eight monthes.

Do you issue different signals for the different indices and ETFs?

No. Our computerized system generates signals that pertain to the market as a whole. In other words, we do not issue seperate signals for the different market indices or ETFs. All of the historical performance and risk data that we have provided for each index and ETF assume that the investment has been traded by our general signal.

What do I receive as a paying Subscriber?

As a paid subscriber, you receive signal change notifications sent directly to your inbox, access to our periodic market updates, and access to our most up-to-date signal information. In addition, you will also receive access to our historical trade data located in our members section.

How do I start my free trial?

To begin your free 30 day trial, simply complete the subscription process using PayPal. Once the transaction has been completed, you will recieve a password via email which can then be changed at you convenience in your user profile. If you are not satisfied in any way, cancel your subscription with PayPal befoire the expiration of the 30 day trial period and you will not be billed.

What if l want to cancel my subscription?

To cancel, you must do so through the PayPal account with which you joined. Please be advised ARTS cannot and will not cancel a subscription on your behalf. Following notification of cancelation from Paypal, ARTS Inc. will stop all credit card charges, though your subscription will remain active until the end of any period for which you have already paid, unless canceled within the first 30 day trial period, at which time, you will no longer have access to member privileges. It is your responsibility to initiate and complete the cancellation process and inform ARTS Inc. in the event of any difficulty.

General Questions

What is absolute return?

Absolute return is a measure of the gain or loss on an investment portfolio, typically expressed as a percentage of invested capital. The adjective 'absolute' is added to stress the difference between this form of return and relative return.

In recent years, so-called absolute return strategies have become popular. These strategies aim to consistently produce a positive absolute return regardless of the directions of the financial markets. Absolute return strategies typically achieve this by investing portfolio assets in short-term cash, and then taking opportunistic long positions and short positions in selected (groups of) securities without structural exposure to any particular market (segment) over time. In statistical terms, such absolute return strategies should have very low correlation with financial market performance.

What is relative return?

Relative return is a measure of the return on an investment portfolio relative to a theoretical passive reference portfolio or benchmark.

What does it mean to be “long” in the stock market?

In finance, a long position in a security such as a stock or a bond - or to be long in a security - means the holder of the position owns the security and will profit if the price of the security goes up.

What does it mean to be “short” in the stock market?

In finance, short selling or "shorting" is the practice of selling securities that the seller does not then own, in the hope of repurchasing them later at a lower price. This is done in an attempt to profit from an expected decline in the price of a security, such as a stock or bond, in contrast to the ordinary investment practice where an investor "goes long", purchasing a security in the hope that the price will rise.

How do you calculate performance?

To calculate performance, we use the open price of the next market session after the issuance of a signal. This is the most accurate and realistic way to present the performance of actual trading. We do not use any intraday or closing prices.

Do you use leverage to calculate your performance data?

No. The results presented do not assume the use of any leverage at all.

What is a trading system?

A trading system employs the disciplined use of rules (algorithms) which have proven to be effective at timing movements in the stock market. The rules have been determined through years of extensive research and back-testing. Human involvement and/or opinion is removed from the trading decision(s) flow thereby allowing trading instructions to be determined only when the extensively researched pre-determined conditions are met.

Trading systems are widely used by hedge funds, pension funds, and other institutional traders. Perhaps the most well known group of system traders are the Turtle Traders. A simple Google search will produce innumerable references to this group for individuals who would like further information on systematic trading strategies. In electronic financial markets, a trading system employs the use of computer programs for entering trading orders, with the computer algorithm deciding on the timing and direction of the trade. Trading systems are widely-used by hedge funds, pension funds, mutual funds, and other institutional traders.

What is stock market timing?

Stock market timing is the strategy of making buy-and-sell decisions on the basis of predictions of market price movements. The prediction may be based on an assessment of market or economic conditions resulting from technical or fundamental analysis. This is an investment strategy based on an overview of the aggregate market, rather than for a particular financial asset.

Is your system entirely mechanical?

Yes. Our system is 100% mechanical and requires no human interpretation or subjectivity. The only human involvement required to operate our system involves our team updating all of the data at the end of each trading day. Our software does the rest.

What is an algorithm?

In mathematics, computing, linguistics and related disciplines, an algorithm is a sequence of instructions often used for calculation and data processing. It is an effective method of generating a list of well-defined instructions for completing a task that will proceed from an initial state, pass through successive states, and terminate in an end-state.

What is an ETF?

An exchange-traded fund (or ETF) is an investment vehicle traded on stock exchanges, much like stocks. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETFs track an index, such as the Dow Jones Industrial Average or the S&P 500. ETFs may be attractive as investments because of their affordability, tax efficiency, and stock-like features. In a survey of investment professionals conducted in March, 2008, 67% called ETFs the most innovative investment vehicle of the last two decades and 60% reported that ETFs have fundamentally changed the way they construct investment portfolios.

What is a mutual fund?

A mutual fund is a professionally-managed firm of collective investments that collects money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. The fund manager, also known as portfolio manager, invests and trades the fund's underlying securities, realizing capital gains or losses and passing any proceeds to the individual investors.

What is back-testing?

Back-testing uses historical stock market data to generate information about how the particular strategy would have performed over various time periods. These results can then be analyzed to determine both the profitability and risk of the investment strategy.

What is correlation?

In probability theory and statistics, correlation (often measured as a correlation coefficient) indicates the strength and direction of a linear relationship between two random variables. Correlation indicates the strength and direction of a linear relationship between two random variables.

How do you account for the return on the cash in your portfolio?

Cash is assumed to be invested at the three month U.S. Government Treasury bill rate. These rates can be referenced here: www.federalreserve.gov

Statistical Questions

What is compounded annual growth rate (CAGR)?

Compound Annual Growth Rate (CAGR) is an investing-specific term for the geometric mean growth rate on an annualized basis.

What is the Ulcer Index?

The Ulcer Index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987[1], and offered by Martin and co-author Byron McCann in their 1989 book, The Investor's Guide to Fidelity Funds. The index is designed as a measure of volatility - but only downward volatility (the amount of drawdown or retracement occurring over a given period).

Other volatility measures, like standard deviation, treat up and down market movement equally. The fact that traders welcome upward movement and dread downward shifts helps to explain the Ulcer Index' unique name.

What is the Sortino Ratio?

The Sortino ratio measures the risk-adjustment return on an investment asset, portfolio or strategy. It is a modification of the Sharpe ratio, but penalizes only those returns falling below a user-specified target or required rate of return - while the Sharpe ratio penalizes both upside and downside volatility equally. It is thus a measure of risk-adjusted returns that some people find to be more relevant than the Sharpe ratio.

What is tracking error?

In finance, tracking error is a measure of how closely a portfolio follows the index to which it is benchmarked. It measures the standard deviation of the difference between the portfolio and index returns.

What is the Information Ratio?

Information Ratio measures the active return of an investment manager divided by the amount of risk the manager takes relative to a benchmark. It is used in assessing mutual fund and hedge fund performance. Specifically, the information ratio is defined as active return divided by tracking error. Active return refers to the level of performance over or under a given benchmark index. Thus, active return can be positive or negative.

What is skewness?

In probability theory and statistics, skewness is a measure of the asymmetry of the probability distribution of a real-valued random variable.

What is kurtosis?

In probability theory and statistics, kurtosis is a measure of the "peakedness" of the probability distribution of a real-valued random variable. Higher kurtosis means more of the variance is due to infrequent extreme deviations, as opposed to frequent modestly-sized deviations.

What is alpha?

Alpha is a risk-adjusted measure of the active return on an investment. It is a common measure of an active manager's performance as it is the return in excess of a benchmark index. The difference between fair rates of return on a stock and "actually-expected" rates of return if referred to as the stock's alpha.

What is beta?

The beta coefficient, in terms of finance and investing, describes how the expected return on a stock or portfolio is correlated to the return of the financial market as a whole.

An asset with a beta of 0 means that its price is not at all correlated with the market; that asset is independent. A positive beta means that the asset generally follows the market. A negative beta indicates that the asset inversely follows the market; the asset generally decreases in value if the market goes up.

What is Jensen’s alpha?

In finance, Jensen's alpha (or Jensen's Performance Index, ex-post alpha) is used to determine the excess return on a security or portfolio of securities over the security's theoretical expected return. The security could be of any asset class, including stocks, bonds, or derivatives. The theoretical return is predicted by the Capital Asset Pricing Model or CAPM model (pronounced "cap-m"). The CAPM model uses statistical methods to predict the return on an asset, and uses the beta as a multiplier. The measure was first used by Michael Jensen to evalulate fund managers in the 1970s. The CAPM return is called "risk adjusted" and reflects the relative riskiness of the asset, meaning that riskier assets have higher expected returns than less risky assets. When the returns are higher than even the risk-adjusted return, that asset is said to have "positive alpha" or "excess returns". Investors are constantly seeking investments that have higher alpha.