The Janus Factor

The Janus Factor presents an innovative theory that describes how feedback loops determine market behavior. The book clearly shows how the theory can be applied to make trading more profitable. The metaphor of the two-faced god Janus is used to reflect alternating market environments, one dominated by trend followers and the other by contrarian bargain hunters.

In this book, author Gary Anderson puts forth a systematic view of how positive and negative feedback drive capital flows in the stock market and how those flows tend to favor either sector leaders or sector laggards at different times.

• Discusses how to find better performing stocks
• Outlines when and how to use momentum strategies for big profits
• Addresses when and how to use contrarian strategies
• Gary Anderson is the winner of the 2003 Charles H. Dow Award, presented by the Market Technicians Association

Intellectually challenging and highly practical, The Janus Factor offers insight into market behavior and new methods for capturing stock market trends.

The Janus Factor vii

Introduction xiii

Acknowledgments xv

Chapter 1 Foundations 1

Serendipity 2

The Data Set 5

Reasons and Causes 6

Befuddled 7

Which Way is Up? 9

Chapter 2 The Assignment 13

Measuring Risk: Offense and Defense 14

Picturing Offense and Defense 17

The Benchmark Equivalence Line (BEL) 19

The Trend of Relative Performance 22

Chapter 3 Feedback and Capital Flow 27

Feedback 28

Feedback and Capital Flow 31

Calculating Relative Strength 37

The Relative Strength Spread 39

Trend Followers and Contrarians 41

Chapter 4 The Janus Factor 45

Structure and Entropy 46

Confidence 47

Is the Market Predictable? 48

Balancing Acts and Paradigm Shifts 54

Chapter 5 Seasons of Success 57

The Venturi Effect 58

The Relative Strength Spread and the Performance Spread 61

Group Studies 68

Chapter 6 Why Jesse Went Broke 71

The Cotton King 74

1911_1914 75

The Final Years 80

Chapter 7 Sheep Dogs and Other Contrarians 83

The Sheep Dog Effect 85

A Contrarian Hedge? 87

The Contrarian Rebound 88

The Contrarian Collapse 92

Chapter 8 Situational Awareness 99

Bielema’s Choice 101

The Bet 106

Let Us Calculate! 109

Chapter 9 The Direction of Momentum 115

Relative Momentum 117

Relative Momentum versus Relative Strength 123

Chapter 10 Long Strategies 127

The Critical Moving Average 127

The DOM Strategy 129

Contrarian Threats 130

A Defensive Long Strategy 133

It’s a Bull Market, You Know 135

Chapter 11 The Complete Strategy 137

Combined Long and Short Strategies 139

The Model Portfolio 141

Execution 143

Appendix 149

About the Author 163

Index 165

“The Janus Factor is an entertaining and learned discourse on the stock market. Anderson’s explanations of complex subjects, such as entropy and feedback, are superb, and his Janus method introduces many intriguing concepts that he tests for improved profit performance. It’s an excellent, well-written, and informative book that ends with specific methods to help you manage your portfolio. You won’t be able to put it down.”—Charlie Kirkpatrick, co-author of Technical Analysis and author of Beat the Market

“For the past 30 years computers have aided the masses to push a button to become hopeful experts in technical analysis of investment markets. This powerful software revolution has almost single handedly replaced original thinking and innovation in the field of market analysis. I have followed Gary’s unique and insightful work for many years. In The Janus Factor Gary describes in wonderful detail his methodology which can be found nowhere else. This work is a one of a kind lesson on what drives markets and profits.”—Peter Mauthe, Chief Implementation Officer, Mauldin Companies

GARY EDWIN ANDERSON is a principal of Anderson & Loe, providing stock market consulting and advisory services to an international clientele of professional asset managers, including banks, mutual funds, hedge funds, and financial advisors. A well-known technical analyst, Anderson won the 2003 Charles H. Dow Award from the Market Technicians Association for his paper on feedback loops in the stock market. Anderson's work has been featured in Barron's, and he has been published in Technical Analysis of Stocks & Commodities. In addition, he publishes a weekly commentary, Equity Portfolio Manager, and is the primary author of Trader's Boot Camp (tradersbootcamp.com), an online educational service.

To A Trader, some profits may seem to come more easily than others. There is a reason for this—known as the Janus Factor—and it’s the single most powerful influence on your trading results.

Nobody understands this better than author Gary Edwin Anderson--a thirty-five-year market veteran and winner of the 2003 Charles H. Dow Award from the Market Technicians Association. And now, with The Janus Factor, he shares his extensive insights on this important topic with you.

Janus was the Roman god of gates and doors and was represented by two opposing faces, suggesting the two-sided nature of things. Here, Anderson uses the metaphor of Janus to explain the dual nature of the markets and how the markets vacillate between two different environments: one which is dominated by trend followers and the other by contrarian bargain hunters.

As Anderson addresses how to recognize these shifts--which will put you in a better position to improve your odds of success from market to market--he also offers a systematic view of how positive and negative feedback loops drive capital flows in the stock market. With a firm understanding of how those flows tend to favor either sector leaders or sector laggards at different time, you'll not only be better equipped to find the market's high-probability sweet-spot, but you'll also discover how to avoid low-probability trades. Along the way, Anderson also shows you what it takes to compute "The Spread," which he considers a trader's ultimate risk-management tool.

Whether you're a new trader or a seasoned pro, The Janus Factor has what you need to succeed. Filled with valuable insights into market behavior and new methods for interpreting stock market trends, this reliable resource will help you enter the market with confidence and exit with profits.

TO A TRADER, some profits may seem to come more easily than others. There is a reason for this—known as the Janus Factor—and it's the single most powerful influence on your trading results.

Nobody understands this better than author Gary Edwin Anderson—a thirty-five-year market veteran and winner of the 2003 Charles H. Dow Award from the Market Technicians Association. And now, with The Janus Factor, he shares his extensive insights on this important topic with you.

Janus was the Roman god of gates and doors and was represented by two opposing faces, suggesting the two-sided nature of things. Here, Anderson uses the metaphor of Janus to explain the dual nature of the markets and how the markets vacillate between two different environments: one which is dominated by trend followers and the other by contrarian bargain hunters.

As Anderson addresses how to recognize these shifts—which will put you in a better position to improve your odds of success from market to market—he also offers a systematic view of how positive and negative feedback loops drive capital flows in the stock market. With a firm understanding of how those flows tend to favor either sector leaders or sector laggards at different times, you'll not only be better equipped to find the market's high-probability sweet-spot, but you'll also discover how to avoid low-probability trades. Along the way, Anderson also shows you what it takes to compute "The Spread," which he considers a trader's ultimate risk-management tool.

Whether you're a new trader or a seasoned pro, The Janus Factor has what you need to succeed. Filled with valuable insights into market behavior and new methods for interpreting stock market trends, this reliable resource will help you enter the market with confidence and exit with profits.