No. of Recommendations: 3
There seem to be three ETFs that invest in Yuan-denominated bonds: DSUM, RMB, and CHLC. If you pull 5-day charts, you’ll see how illiquid they are. But if you pull 3-month charts, you’ll also see that DSUM is interesting and wish you’d gotten in as it came off its bottom.

Here’s the 5-day chart for DSUM. That’s thin, right? Shares trade by appointment only. By contrast, here’s charts for PCY and EMB.;range=5d;c...;range=5d;c... Now, do this. Switch the settings to ‘line chart’ and plot all three.;range=5d;c... Not entirely, and not with 100% assurance, but you could cue off the more liquid ETFs that roughly fall into the same category of “Emerging Market Bond ETFs to time your entries/exits for DSUM.

OK, keep that thought in mind and consider this one. Throw the three funds that invest in Chinese bonds on your screen, but in a long enough time-frame to overcome illiquidity, say, a 3-month look-back.;range=3m... Now, we’re getting somewhere. We know (from looking) that the three are illiquid. We can also conclude (from looking) that trying to invest/trade RMB would drive you crazy. Its volatility could make you a ton of money. But its illiquidity would lose it even faster. That’s not a fund you should mess with. But take a closer look at DSUM. The line it plots is steady, steady steady. So get rid of CHLC and RMB, and plot just DSUM by itself.;range=3m... Bingo! We’re looking at a possible winner. A 3-month return of 1.92% is almost not worth fussing with except for the fact that return is very, very steady. At this point, off stage, you hear the blare of trumpets and a deep, Carlton Heston voices comes from the clouds saying, “Past performance, etc., etc. OK, accept that warning for what it is, just good common sense.

The values chosen for the MAVs don’t matter. What you want is ‘fast’, ‘medium’, ‘slow’, and 10-20-40 gives you that. Now look at the same chart in a longer time frame.;range=1y... If you used a cross of the ‘fast’ MAV over/under the ‘slow’ MAV, you’d have gotten in and out pretty much where you’d want to have gotten in and out, albeit with a couple of whipsaws last summer. So, for clarity, pull the ‘medium’ MAV.;range=1y... Alternatively, pull the ‘fast’ MAV.;range=1y... Now, we’re cooking, right? A whole bunch of signals have been eliminated, and the pace of turnovers has been slowed way down. Doing one exit and one re-entry over a 12-month period is not a frantic investing/trading pace. We get kicked out about when things are falling apart, and we get put back in about the time when things are picking back up.

Now comes some of the hard work, the fundamental stuff. Hard-core chartists never care about the reasons why the chart looks like it does. They just assume that buyers and sellers have discounted all relevant info, and they trade the chart on its own terms, buying if prices are going up, selling if prices are going down. Investing/trading can be done that way, and very successfully so. But I like to ask “Why?” the chart looks like it does as a means of guessing where prices are headed next. “Why are investors buying Yuan-denominated bonds? “Will they continue to do so?” “Is there an opportunity here worth pursuing?” A gain of 1.92% in three months time is tiny, tiny money. But that’s nearly 8% per year, and if DSUM tracks differently than the other things I’m buying, it might offer diversification, which is always worth paying for.

NB: I’m NOT urging/advocating/suggesting that you buy DSUM. But I am suggesting that the *process* of discovering and vetting these kinds of potential opportunities is important. That’s what will put money into your pockets over the long haul, a disciplined process by which you can look at any possible investment and then say 'Yea' or 'Nay' with confidence. You're not going to be every time, nor do you need to be right even half of the time if you're making asymmetrical bets. E.g., typical profile of 'right vs. wrong' for a trend-following system is around 35% right. But because losses are kept small and winners are let ride, the system is net-profitable. By contrast, according to a white paper by 361 Capital, the typical 'right vs. wrong' profile for a counter-trend system is about 65%, which is why I favor the latter over the former.

Most investors really aren't comfortable with investing/trading counter-trend. But they also aren't comfortable with dealing with the low right/wrong ratio of trend-following system, either. This is a problem for which I don't have any solutions other than to say, maybe your best path is to let other manage your money for you, so you can get on to the things in life you do enjoy. Whether you have a written investing plan, or whether you don't, you are using a trading-system to make your buying/selling decisions. To the extent that the system is rational (meaning, rigorously tested and demonstrated to have a positive-expectancy), and to the extent to which you are consistent in applying your set of rules, is likely the extent to which you will be successful in pulling more money out out markets than you bring to them. Process is what matters, not the individual positions. By itself, DSUM doesn't matter. But it could matter within the larger context of an overall investment plan. Check it out and decide for yourself.

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