The TGR Dollar Trend Timing Model

The TGR Dollar Trend Timing Model buys and sells the US dollar based on price momentum and other variables. The model is designed to warn of down periods for the dollar relative to other currencies. The chart below shows the US dollar priced against a basket of major foreign currencies. The red circles are the dates and price ranges when the model was invested in the dollar. It's clear that the trend model is very effective at avoiding dollar bear markets. The Dollar Trend Timing Model uses more than price action to time the buy and sell points. It includes circuit breakers that will exit the market if a danger condition appears.

Currencies are difficult to time but the TGR Dollar Trend Model greatly out performs buy and hold. During the out periods, an investor could hold a broad currency fund like merkx or a short-term world bond fund like bwz or ishg. The model wins on buy and sell trades and was in the dollar only 34% of the time since 1975.

Buy Side Results
The model wins on 73% of its 22 buy trades over the thirty-five year period. Normally, I wouldn't be satisfied with such a low winning percentage but the losing trades are negligible. The largest losing trade was -1.4%. The largest winning trade was 11.4%. Winning points beat losing points by 12.4 to 1 (73 up points and 6 down points). This performance is remarkable considering the dollar was in a long downtrend.

Sell Side Results
The model wins on 64% of its 22 sell trades. This isn't very high but let's look at the details. The average loss on trades was only 2.1%. The largest one-time loss was 5.4%. The second largest loss was 2.7%. The average gain was 11.6%. The largest gain was 53.8%. The second largest gain was 44.6%. Winning points beat losing points by 5.7 to 1 (115 up points and 20 down points).

Combined Results
The only way to use this model is to switch from the dollar to foreign currencies. If a conservative investor had $10,000 in 1975 it would only be worth $7,300 in relative purchasing power in 2009. That's because the dollar fell against internationally traded currencies. Using the TGR Dollar Model and excluding interest income, $10,000 from 1975 would be worth $51,000 at year end 2009. That is a 4.8% yearly compound capital gain. So, your profit using the TGR dollar model would be the yearly income on your selected asset class plus 4.8% in currency gain.

The TGR dollar model is a good investment tool and rewards international currency diversification. The performance suggests investors should listen to the model and reduce dollar exposure when the model is in OUT mode. Stock investors may be able to enhance their gains by shifting stock allocations more to foreign markets to take advantage of rising foreign currencies. Of course, there's no guarantee future performance will like the past.

Below the chart are the historical buy and sell dates going back to 1975. This model was designed in 2009 and the data represents back tests. This model is not a dollar - gold switching strategy.

The Trade Weighted Dollar Index
TGR Dollar Trend Timing Model
Buy and Sell Dates 1975 to 2009

At December 31, 2009 the dollar index has fallen to 73.98, an additional 6.6% loss for holders of dollars.