A robust and easy-to-manage method by Raymond Rondeau, an expert in strategy design
AAII Conviction Plus has been released and is supported by the American Association of Individual Investors**. The tools were developed by their Senior Technical Analyst and Investment Strategist, Raymond A Rondeau, an expert in system design.
This package includes 3 indicators, 1 risk proportion tool, and 3 systems that are built around 7 total factors with an emphasis on kinetic conviction strength. In true AAII fashion, these systems were designed with a quantitative, statistically based academic approach through the development and substantiation of factors and supported by rigorous research and backtesting. The listed performance results (supplied to us by AAII) were derived from a 10-year study on every single stock in the S&P 500 at the time of study from 2013 – 2023.
The development of these systems puts an emphasis on high win, risk control, and consistency of returns
The following system descriptions highlight the type of investor each system may be most appropriate for, along with a summary of the backtested results.
Note: Backtested performance does not include slippage, commissions, inflation, taxes or other factors which would adversely affect results. These results were also compiled on end-of-day signals only and held in bullish and bearish market environments. Also, they do not include fundamental selection processes, manual technical-based assessments, money management strategies, or dividends that would likely improve results.
AI - Kinetic Conviction PF (Profit Factor)
Testing has shown this system to perform at a plus 81% hit rate, at a 3.73 profit factor. This system has produced extraordinarily stable and consistent returns over ten years (2013 – 2023) of varying market conditions. Over these ten years, the system backtested to a greater than 35% non-compounded annual return, and it did not have a single losing year (even during COVID). The maximum number of consecutive losses for this system was only 2 (the maximum number of successive wins was 19).
To achieve this level of performance, the system utilizes restrictive factor criteria that resulted in only an average of 41 signals per year (on the S&P 500 components). Additionally, this system has a shorter average trade length (compared to the other KC systems) at ~ 27 days.
PT system may be appropriate for: Investors/traders with a short-term time horizon willing to scan a larger universe of stocks and prioritize risk and consistency of returns.
Category | Value |
---|---|
Number of Trades | 410 |
Hit Rate - % Profitable | 81.7 % |
Profit Factor | 3.73 |
K-Ratio | 0.5693 |
Average Trade $ Return | $137.37 |
Average Trade % Return | 2.78% |
Average Trade Length (days) | 26.82 |
Maximum Consecutive Wins | 19 |
Maximum Consecutive Losses | 2 |
AI - Kinetic Conviction LT (Long-Term)
Testing has shown this system to perform at a plus 75% hit rate, 2.66 profit factor, and minimal drawdowns for a longer-term strategy. This system produces a moderate number of average signals at ~175 per year (on the S&P 500 components) and has the highest per-trade percentage return at over 4.3% of the KC systems due to its longer average trade length at ~ 82 days.
The LT system may be appropriate for: Investors/traders with a relatively longer-term time horizon focused on total returns (including dividends) and looking for a system to identify potential positions or assist with the timing on a group of securities of current interest.
Category | Value |
---|---|
Number of Trades | 1766 |
Hit Rate - % Profitable | 75.7 % |
Profit Factor | 2.66 |
K-Ratio | 0.3537 |
Average Trade $ Return | $215.20 |
Average Trade % Return | 4.35 % |
Average Trade Length (days) | 75.71 |
Maximum Consecutive Wins | 48 |
Maximum Consecutive Losses | 13 |
AI - Kinetic Conviction ST (Short-Term)
Testing has shown this system to perform at a plus 77% hit rate, 2.5 profit factor, and with minimal drawdowns from 2013 – 2023 of varying market conditions. This system produces a moderate number of average signals at ~187 per year (on the S&P 500 components) and has a mid-term average trade length (compared to the other KC systems) of ~ 35 days.
The ST system may be appropriate for: Investors/traders with a relatively shorter-term time horizon looking for a system to identify a list of potential positions. For optimal performance, investors can apply additional analysis methods to refine these candidates and improve the reported baseline results.
Category | Value |
---|---|
Number of Trades | 1873 |
Hit Rate - % Profitable | 77.04% |
Profit Factor | 2.50 |
K-Ratio | 0.3266 |
Average Trade $ Return | $110.51 |
Average Trade % Return | 2.24% |
Average Trade Length (days) | 31.05 |
Maximum Consecutive Wins | 35 |
Maximum Consecutive Losses | 9 |
At the heart of these systems are 3 intensity conviction-based indicators that can be used for analysis on any security and with any trading and investing approach. These 3rd generation indicators have been designed specifically for today’s high volatility, globalized market environment by addressing frequency trading and dark pool activity.
These indicators are:
Relative Conviction Momentum (RCM): RCM is an indicator that reads, interprets, and displays a more accurate representation of volume for measuring trend/intensity momentum relationships for probable trend continuation or reversal assessments.
Optimized Balance Conviction (OBC): OBC is an indicator that measures and proportions up/down conviction amounts to provide investors a secondary reading for evaluating if a trend is likely to continue or reverse.
Kinetic Conviction (KC): KC is an indicator that reflects the “true” strength of a relative price move by accentuating important activity and filtering less meaningful moves. Using standard deviation bars, KC clearly displays if a price move is of high or low relative significance. KC also identifies key breakouts and reversal activity.
Also included is the PROVE Share Calculator.
PROVE is an investment tool that evaluates a security's average historical downside daily risk. With these measurements, PROVE can assist investors with the two common questions:
PROVE calculates and provides the dollar amounts and number of shares (whole or fractional) so that each security in a portfolio will have a theoretically similar end effect on performance. These guidance’s are derived from an investor's targeted self-assessed risk tolerance for a security's percentage loss on an average day. This amount can be derived from several methods, including positions that an investor currently holds and is already comfortable with. These methods are covered in the instruction manuals.
PROVE can also be used as a hedging tool by providing users with the number of shares of a correlated benchmark to short to theoretically offset a portfolio’s downside risk during times of market stress. Additionally, PROVE can be used to guide more sophisticated equity market neutral and delta neutral approaches.
AI Conviction Plus features full integration into MetaStock
With the Expert Advisor™ you will see each current and historical signal on the chart of every security.
With the Commentary Reports™ you will get detailed statistical measurements along with a simple explanation of all the trade setups and how to take advantage of the opportunities.
With the MetaStock Enhanced Charting, you can adjust several parameters of each tool to contour the outputs to your approach.
With the MetaStock Explorer™ you can scan thousands of securities to find the best candidates for your preferred setups.
Each Conviction Plus user can also sign up and receive one year of complimentary AAII membership ($49 value). This includes access to several fundamental scans based on the theory of some of the world’s greatest investors.
Each Conviction Plus user will also receive an additional AAII Instruction guide. This guide provides additional analysis examples and detailed information for advanced users looking to adjust each tool's parameters to reflect their trading/investment style.
* The results for AAII's Conviction systems performance reports were verified to be accurately reproduced with subsequent retesting using a third-party system backtesting program by QuantKey, an industry leader in system design and appraisals. QuantKey, an independent firm, is a leader in system design, development, appraisals, and evaluation of investing and trading systems for industry vendors and hedge funds.
CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
** AAII is an academic evidence-backed non-profit organization that has been developing tools to assist individuals since 1978. Because of their established protocol and academic-oriented approach in the investment industry, Metastock has agreed to include this research as it related to these tools and systems. Metastock makes no claim or representation to the accuracy of this research or the reported backtested methodologies or performance. At MetaStock's request AAII has agreed to provide every Metastock user copies of these reports so that they can review the information for completeness and accuracy.