Nafa Risk Formula

    We have identified the following risk factors and have extensively worked to reduce the risk associated with them:

    Time stayed in the market during active trading hours. We have considered that time in the market provides less control over funds and exposes investments to changes in value. We have reduced our trading time to a minimum (as low as 3 minutes in some cases per trade), while still achieving a predetermined profit target. Our trading risk has been reduced to a fraction of the trading risk a regular portfolio held all day has.

    The regular portfolio risk factor is 7.5 times NAFA’s risk factor (assuming our average trade is extended to one hour).

    Time in market after active trading hours. When the market closes at 3 p.m. central time, invested funds remain at risk for market changes until the market opens again the following day at 8:30 central time. We do not trade after market hours (from 3:30 to 8:30 am next day central time). We hold no position after regular market closes. A regular portfolio’s risk factor is 16.5 times that of NAFA’s risk factor.
    Weekend and holidays when the market closes.   Funds are still invested and are subject to market changes.

    We do not trade or hold any position after the market closes on Friday.

    A regular portfolio’s risk is 105 times that of NAFA’s risk factor.

    To summarize our risk reduction effort, we will illustrate a comparison between a regular portfolios holding for one year to that of NAFA’s risk factor when doing one trade a day held for one hour and repeated every trading day.

    A regular portfolio’s risk factor is measured by holding investments value during non tradable hours, which are weekends (from 3:00 pm Friday to 8:30 am Monday), extended trading hours after the market closes (from 3:00 pm central time to 6 pm central time),  and trading hours (8:30 am to 3:00 pm central time)

    Weekends= 52 weeks a year x 2 days (Saturday and Sunday) x 24 Hours = 2,496 units compared to a 0 units of NAFA Risk since we do not hold any market position or trade during weekends.

    Market Closed Hours = 16.5 Hours (a week) x 52 weeks x 5 days = 4,290 units compared to 0 units of NAFA Risk since we do not hold any market position or trade during market close

    Trading Hours = 7.5 trading hours x 52 weeks (a year) x 5 days (a week) = 1,950 units compared to that of 1 unit of NAFA Risk since deviation is not a risk it is and opportunity see chart above and notice opportunities marked from 1 to 13.

    It is also worth noticing here that not all deviations are entry or exit and one deviation may achieve profit target for the day.

    NAFA has eliminated from its system the risk units found in that of a regular portfolio’s – 8,736 units (2,496 +4,290 + 1,950) NAFA’s risk factor is 1 unit compared to 8,736 units of a regular portfolios holding with any long term holding investment.

    Stock Selection – The criteria of good stock for NAFA to trade are price movements upward and downward, high volume and liquidity.  Stocks do not have to move in one direction (they can be moving up or down). The more elements you add to the criteria, the more subject the stock evaluation is to errors and changes over a period of time. Fundamental selection is theoretically subject to unpredictable events that will make it riskier than simple technical criteria. We enter into a trade based on technical analysis using NAFA developed market indicators and software. We have reduced the time and research needed to find a stock from 7 elements to 3. We can quantify risk reduction of error from 7 elements to 3.
    Opportunity to adjust investment to current market risk and changes. When the market is moving either way up or down, it creates an opportunity to enter and exit. Each move is considered opportunity. When a movement is sharp, good trading strategy and practice suggests lowering the investment amount to maintain same level of risk and achieve same profit target. See target achieved with 400 shares will have the same target achieved by 1800 shares of the same stock. We enter into the market based on volatility and profit target. While one entry may create profit target, it is preferred for NAFA to enter at a smaller lots of shares multiple time. Splitting entry into 7 lots allow testing of consistency of market condition during the seven entry times. This reduces the risk of drawdown affect on entry by 7 times.
    The environment at the decision taking time.  Engagement of the fund in a trade at a certain market condition may be adequate at that time, however, the change of market conditions over a long period of time increases risk and makes previous adequacy of environment to market condition fails. We shortened the time between decision makings. We exit at any change of market condition from which a decision is taken. This closeness to decision making at time of exit eliminate this risk to the ratio of 1 to 365 if we perform one trade a day.
    Multiplication of successful trades many times during the day increases profitability at the same risk level. We trade the same trade and repeat it more than once during the days. This profit increasing method reduces the risk of the second entry by the amount of profit realized from the previous trade. Repeated entry after the first entry of the day bears the same risk level regardless of time during the year. One day with three trades will have a factor of 1 risk of deviation from the linear line when compared to long term holding. The risk on capital for long term holding of one year is  (365/2) (We divided by 2 to measure deviation from mean considering one deviation in favor and the other against for one long term trade)
    Liquidity of the traded stock provides reduced risk when exiting a losing trade and increases the realization of profit at the targeted exit in a profitable trade. We trade only liquid stocks with a daily average volume of 2 million shares with a price no less than 10 Dollars. We do not enter any trade when bid vs. ask difference is more than 3-5 Cents. This reduces the risk from 1 to .05.
    Volatility is a measure of risk – the higher the volatility, the higher the risk. Since we use volatility to trade, we reduce the risk of trading by utilizing volatility. We use volatility to increase profitability by adjusting the investment amount inversely to reduce risk and achieve same profit target. While volatility creates a sharp deviation from the mean, using volatility for entry does, however, reduce the risk of deviation from the linear line by 50%.
    Common indicators such as RSI, Fibonacci Tools, Bollinger Band, DMI and others have been over exposed to public and have reduced their value. NAFA has developed our own indicators based on what we can detect from market behavior.  NAFA has modified many indicators to provide valuable information.  These indicators are so advanced in that they are able to read multiple charts, tickers and intervals at the same time allowing for the production of clearer signals. Risk of predictability of entry and exit is reduced through this development and reduced by 60% to 75%. We are profitable 60% to 75% per trade.

    Between Bond and Hedge Fund-Fund Position

    NAFA’s development objective is to match the security provided through investments in bonds, and profitability offered by investing in hedge funds. We accomplish this by reducing elements of risk and the degree of risk encountered within each of those identified elements. We increase the return on an investment through the application of our developed trading modules that have been successfully tested. In NAFA’s strategy and programming the objective is to find a profitable trade and repeat it to accomplish profit target.

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    Future Development

    We are currently developing NAFA Max Income fund. This fund will be based on longer holding periods while reducing the required investment amount. The fund is based on a new version of indicators designed for option trading. This new development has been encouraged by initial investors and NAFA’s own funds.

    The fund will be open for limited investors starting from October 1, 2013.

    Also, NAFA Partnership, LTD’s partners and Ace sales & Services created a new corporation to develop trading education program. The program will be offered in three stages Introductory, Basic and Advanced. The teaching and the curriculum will be provided by professionals in education and IT in addition to NAFA principals. The program is anticipated to start in the first quarter of 2014.