For 2012 I’m introducing a new trading paradigm. I call it Mosaic and it reflects the results of a project I’ve been working on for over a year. Mosaic is a risk management model that seeks to minimize drawdown while at the same time producing a consistent and essentially linear equity curve. Above are the 5 year charts of some of the most popular ETFs and price volatility over time is quickly apparent.
These ETFs also represent some of the most popular candidates for a “diversified” portfolio although those traders who have actually held this motley crew may think the concept of “diversification” has eluded them…the Mosaic models provide an alternative interpretation of the concept . Below is the equity curve of Mosaic over the same time frame and thoughtful traders will recognize there are a number of ways to capitalize on the skew value of .42 using options. This then is the crux of Mosaic.
Going forward, I’ll publish more details about the Mosaic model each Tuesday. Just for entertainment purposes a real time equity curve will be posted each week tracking the progress of the basic model. Certain elements of Mosaic will remain proprietary but the basic concepts will be clear.
Mosaic is the next step in the refinement of the Lazy Man model and it’s a big one……one that will absorb risk in the market and allow you to sleep at night knowing your IRA or trading account isn’t going to vaporize …assuming your funds are held with a reputable broker. Next week…the model components.
