THE KURZENCWYG RATIO
It’s M.B. Kurzencwyg writing. I’ve been asked over the years if there is a way to hedge the automated system with a strategy that runs side by side with the system.
I will now disclose on this page for the first time a formula that I’ve been using for years that for me is the best way to hedge the automated system with either a futures contract 12 months due for expiration or positioning in an out of the money Put or a Call. The formula is called The Kurzencwyg Ratio.
I’ve discovered over the years that the first 10-30 sessions that start off the year can really be a strong indicator of how the rest of the year will pan out. For some reason the momentum taking shape once the first session of the year kicks-in tends to be the underlying narrative for the rest of the year, especially in the E-Mini S&P 500 futures contract.
The Kurzencwyg Ratio is basically a ratio of the number of times the market closes above previous settlement or below previous settlement. The measurement is based on the closing price at 4:10pm Est. Every session that closes above previous-day settlement is considered a +1 day and every session that closes below previous-settlement is a -1 day. So for example, if the first 3 sessions of the year all close above previous day settlement price the ratio would be at +3. However let’s say the 4th session and 5th session of the year closed negative or below previous-day settlement, the ratio would decrease by 2 and so The Kurzencwyg Ratio would then be at +1.
Once the ratio hits either +5 or -5, we will then take a position. If +5, we would go Long the market the following trading session either with a futures contract or a Call. If the ratio hits -5, at the RTH open at 9:30am we would Short the market with a futures contract or take a Put position as a hedge at that specific time. As mentioned above I recommend taking a position with a futures contract that expires 12 months in to the future and holding on until expiration or whenever the trader deems fit to liquidate the position. One can also hedge with Options and I suggest Out-of-the-Money Options. .
Below I will post the results for the current year and 3 previous years. You can do the research on your own based on the information I have offered above for years prior to 2021.
I plan to update news on the performance of The Kurzencwyg Ratio every year once the ratio signals a position for the year. When trading using Fortress Rubicon this could be an alternative hedge against the system. For example, in 2023 the Fortress Rubicon system closed negatively on the year with a 14.05% loss on the year. But with The Kurzencwyg Ratio we would have been long the futures contract in the E-Mini S&P 500 on January 27, 2023. If the positon was closed at the end of the last session of the year at 4:10pm Est there would have been a gain of 570.25 in the E-mini which would have more than offset the 14% loss in value for the system for the trading year..
I thank you for reading this article and I am looking forward to posting news again on the hedge I have recommended above. Always remember that past performance is no indicator that future results will be the same. I recommend reading the Disclaimer at the bottom of our website which offers more detailed guidance and information on risk and hypothetical results.
Here are the official ratio stats for 2024 and also for the last 3 previous years of trading.
Here are the official stats:
2024
January
2 > -1
3 > -2
4 > -3
5 > -2
6 > -1
9 > -2
10 > -1
11 > -2
12 > -3
16 > -4
17> -5
The Kurzencwyg Ratio signals Short Position for 2024 on January 17, 2024
A Short position was taken on the Open on January 18 at 9:30am Est at 4785.00
2023
January
3 > -1
4 > 0
5 > -1
6 > 0
9 > -1
10 > 0
11 > +1
12 > +2
13 > +3
17 > +2
18> +1
19 > 0
20 > +1
23 > +2
24 > +3
25 > +4
26 > +5
The Kurzencwyg Ratio signals Long Position for 2023 on January 26, 2023
A Long position was taken on the Open on January 27 at 9:30am Est at 4244.00
Last session of year at 4:10pm Est closed out at 4814.25 with a gain of 570.25
2022
January
3 > +1
4 > 0
5 > -1
6 > -2
7 > -3
10 > -4
11 > -3
12 > -2
13 > -3
14 > -2
18> -3
19 > -4
20 > -5
Kurzencwyg Ratio signals Short Position for 2022 on January 20, 2022
A Short position was taken on the Open on January 21 at 9:30am Est at 4678.00
Last session of year at 4:10pm Est closed out at 4044.00 with a gain of 634.00
2021
January
4 > -1
5 > 0
6 > +1
7 > +2
8 > +3
11 > +2
12 > +3
13 > +4
14 > +3
15> +2
19 > +3
20 > +4
21 > +5
The Kurzencwyg Ratio signals Long Position for 2021 on January 21, 2021
A Long position was taken on the Open on January 22 at 9:30am Est at 4015.25
Last session of year at 4:10pm Est closed out at 4987.25 with a gain of 972
