The method described below uses a combination of momentum and relative strength. The fund to be purchased is one that has been moving up recently (momentum) and is the best performing among the Selects, which are sector funds (relative strength). Funds are not sold until they are no longer among the best performing Selects (relative strength). Typically, funds are held until they start to drop or their rate of increase slows (momentum).
The system has four parameters:
A) the length of the test or ranking period for buying
B) the minimum number of weeks to hold purchased funds
C) the length of the test or ranking period for selling
D) the cutoff percentage for deciding to hold or exchange to another fund
The values of A, C, and D are proprietary and are not disclosed here. The value of B is 5 weeks. This avoids the 0.75% penalty for selling before 30 days that was removed from some of the Selects funds in late 2016 and may be waived at some times for others. My research shows that the fund purchased using the system on the average is not the best performing fund over the next week or two, but it is over the next five weeks, so the value of B probably would be 5 weeks even if there was no penalty for early selling.
The system parameters were developed by extensive research, analysis, and testing on data beginning in January 1987. The oldest Select funds started in 1981, but it was not until 1986 that there were enough of them for this type of trading method to be effective.