Thread: Review - DOW Letter (Set Time)

DOW LETTER - (Set Time)

WHAT IT SAYS ON THE WEBSITE

Website : Dow Letter Website
Publisher : DOW Letter Team
Cost : ?29.95 / month
Review Date : September 2009 - December 2009

Dow Letter offers “you the opportunity to make consistent profits by trading the Dow Jones Industrial Index (DJI)”. Their trading system “constantly analyses the DJI in depth using technical/mechanical methods” with the aim “to take 30-40 points profit from each signal”. “We concentrate on small but consistent returns which over time using compounding can make substantial gains”.

This is not a get rich quick scheme, the aim is to “make a modest overall weekly profit, on a consistent weekly basis, with low overall drawdown”. Since its launch in 2006 the system “has never had more than 3 losses in a row”, the longest winning streak being 12 trades in a row in April-June 2009.

Signals are “generated near the close of trading sessions” and are usually delivered about 5 minutes before the Dow closes (that’s 20:55 UK local time). Trade frequency can be anything from 3 to 10 times per month depending on market conditions. Targets are 30 – 40 points and Stops are 60 points. Although one can start trading the signals with a ?200 account a minimum account size of ?600 is recommended with a risk of 5-10% of account size per trade.

The service is available for free, for one month by opening an IG index account and then mailing your details to Dow Letter. Additionally, the service comes with a money back guarantee, “If our systems performance does not deliver more winning than losing trades you can request a full refund on your subscription within 60 days”. NOTE: Due to the Risk:Reward ratio, even with more winning trades than losing ones in any fixed period this could still equate to a net loss.

The most recent performance trade history is provided on the website with the full history available upon request.

THE SERVICE

We had access to this service from September through December 2009. It is a little bit different to others we have come across to date in that it kind of works in two parts.

Just before the US market (DOW) is due to close, (16:00 ET), if there is a trade, the first signal is received by SMS and by email at around 20:55 (UK Local time). It simply states to go Long or Short on the Dow at close (21:00 UK Local time). In reality this means placing the trade just before the close, we aim for 20:59 to be exact, as we assume most others do. The reason for this is that the spread (on IG Index) changes from 4 to 6 after the market (DOW) has closed.

Shortly after the first signal a second signal is issued, by email only. The email arrives shortly after 21:00 UK Local time and provides the exact levels that the Dow Letter service has executed it’s trade at. It includes the actual Stop and Target that should be applied and you then amend your own trade accordingly, to ensure you achieve the same outcome.

This process may sound a little convoluted but after a little bit of confusion with the first trade one gets to know the sequence quickly enough. It takes about 5-10 minutes in total to react to the two signals and then it is Set & Forget.

Stops are, on average, around 60 points and Targets are, typically around 30 – 35 points. This is not a Risk:Reward we favour as it means the service has to deliver a 2:1 Win:Lose performance, at least, just to cover Break-even.

This service has been running for just over 3 years and, when requested, all trade history was provided. We used this history to put together some performance statistics, as follows:

2006
• 35 Trades with 26 winners, a Win:Loss ratio of 2.8:1
• Highest winning streak was 7 in row
• Maximum draw-down of 180 points (15%)
• Total profit for the year (from May) of 425 points, just over 35%

2007
• 86 Trades with 68 winners, a Win:Loss ratio of 3.7:1
• Highest winning streak was 11 in row (twice)
• Maximum draw-down of 140 points (circa 12%)
• Total profit for the year of 1,530 points, just over 127%

2008
• 139 Trades with 116 winners, a Win:Loss ratio of over 5:1
• Highest winning streak was 10 in row (twice)
• Maximum draw-down of 140 points (circa 12%)
• Total profit for the year of 3,109 points, around 260%

2009
• 34 Trades with 27 winners, a Win:Loss ratio of over 3.8:1
• Highest winning streak was 12 in row
• Maximum draw-down of 180 points (15%)
• Total profit for the year (to date) of 523 points, around 43%

Notes:
• Results assume a risk of 5% of (initial/opening) account balance per trade, so, thus, no compounding.
• Average Stop loss is 60 points per trade.

CAN IT WORK

Trading this service is quite straight forward, after experiencing the first trade. Place the initial trade when the 1st signal is received (around 20:55 (UK Local time)) and then adjust Stop and Target levels accordingly, when the 2nd signal is received (by email about 5 minutes later) and walk away.

Like with most signal services where execution is required immediately one does have to make sure they are around to react at the specific times. But, at least this window is known and is specific (20:55 – 21:05 (UK Local time)). As expected, sometimes we got a better entry than Dow Letter and sometimes worse, never more than a few points difference, swings and roundabouts really.

We like this service, historic results are very good, it’s a set time each evening, easy to operate, Set & Forget and our results emulated those on the web-site, almost exactly. Additionally, if this performance can be maintained, costs also seem quite reasonable.

The downside, the only one we really identified, and it’s quite obvious. We don’t like the Risk:Reward as it needs to be supported by an impressive Win:Lose ratio. The comfort factor here is that this is evident from historic results, 2.8:1 was the worst win rate over a 12 month period (2006).

Unfortunately for us we didn’t make a profit during the period we had access to this service. However, we are confident that the results published on the website are accurate and that we have satisfied ourselves that, long term, this service delivers. For these reasons we are choosing this as the first service (since BOM Signals was withdrawn) to make it to our “Services We Use” list.

NOTE: We also incurred some rollover costs when using the service, also in relation to DOW pricing and dividends. We have reported figures as is as we are led to believe these costs work for/against at times, but generally even out over time. We will only be able to add more comment to this as we progress.

We have created a journal listing all our trades to date and will continue to maintain it on an ongoing basis.

NOTE: During December there were no trades at all due to low volatility in the market. The team at Dow Letter tell us they are considering offering a free months worth of subscription to clients on such months.

SUPPORT

Our Support requests were minimal but when contacted, responses were typically received within 24 hours.

CONCLUSION

PRO's
• Signals are clear and concise at a set time each evening (UK Local time).
• Entry process is 100% mechanical and Set & Forget.
• Historic results are good and consistent (and have been verified September through December 2009).
CON's
• 5% risk per trade may not be for all (one can of course adjust to suit).
• We will keep a watchful eye on those potential rollover costs.
• We just can’t let it lie! That Risk:Reward ratio (per trade) of 60:30 still niggles, even though we have satisfied ourselves with our due diligence based on exposure to date and the historic data.

Do remember, your comments are important, if you decide to purchase this service, please support us by using our link and by reporting back your findings, both are valuable to us and the service.


ReviewTeam - www.systemsfortraders.com