Frequently asked questions about the Dow Double Diamond Plan

What was Jim’s objective in creating the Dow Double Diamond Plan?

Jim knew that many investing strategies that were effective several years ago were no longer working in today’s choppy market. He was also aware that many investors were unhappy with their results in recent years and were looking for a more reliable way to build wealth. So, he set out to create a plan that would be easy to follow, that would maintain strict risk controls, that would eliminate human judgment calls, and that could produce potentially large returns in today’s market. Jim’s professional DDD Plan uses the popular Dow Diamonds (symbol DIA) and has shown in its backtesting the capability to meet these important objectives.

Can I use Jim’s DDD Plan with my tax-deferred retirement account?

Yes, but only with 2x, 3x, and 5x execution accounts. You will need to set up your IRA with a custodian that allows futures trading. (send us an email and we will provide the name of a broker offering this service) Using DDD with your IRA is ideal, since deferring taxes will maximize the power of compounding and build your wealth faster. It is not currently possible to use DDD with a 1x cash or 2x margin account at a regular brokerage firm, and that’s because the DDD Plan trades both long and short. Going short requires a margin account, and under current law you cannot put qualified retirement funds in a margin account (even when you don't plan to use margin). Of course, you can always use a taxable DDD account to supplement your retirement savings, and the advantage of paying taxes as you go is that all the money will be yours tax free later on.

Is there a limit on what I can invest in the DIAs?

No. Jim designed the DDD Plan to use the massive DIA market precisely because there would be no limit on your investment or growth potential. As you grow your nest egg, first piling up tens of thousands of dollars, then hundreds of thousands, and eventually $millions, you can keep compounding it. That’s the beauty of it!

Can I trade options with the Dow Double Diamond?

Yes, you can. But keep in mind the Dow Double Diamond was not designed for options trading. Rather, it was designed for the Dow Diamonds, the Dow single stock futures, and the Dow e-mini futures. That said, the DDD plan gives very good entry signals, which experienced options traders can put to good use. But each options trader should develop an exit strategy based on his/her trading style, rather than rely on DDD, and that strategy should take into account the "time factor." The DDD's plan's exit signals often come past the optimal profit point for options. Many DDD members do use the plan's entry signals to trade options and have reported good results.

How fast could my money grow with the DDD Plan?

DDD is offered at 2x, 3x, and 5x trading: the 2x doubles all gains and losses; the 3x triples all gains and losses; the 5x quintuples them. Each investor must choose a single approach, or make an allocation to two or three of these approaches, to best suit his/her wealth goal. For illustration, let's see how fast a $100,000 investment grows when it compounds at an average 65% annually. Keep in mind that the growth rate you choose to target is not a guarantee of your returns. Also, in order to target your growth rate, you'll need to make a custom DDD allocation plan (a variety of potential growth rates are available through allocation). To learn how to set a wealth goal, determine your target growth rate, and make an allocation plan, see the Goal Setting page (access from home page).

At 65% compounded annually, a $100,000 investment grows to...

[/] $449,212 in three years

[/] $1.2 million in five years

[/] $3.3 million seven years

[/] $14.9 million in ten years

NOTE: If you have $50,000 to invest, you can halve the above numbers. And if you have $200,000 you can double them. Of course you can invest more or less. You can invest monthly, quarterly, or yearly. And you can also make an allocation plan to target a lower or a higher growth rate. Keep in mind the above examples reflect tax-deferred growth inside an IRA and do not take into account trade commissions or slippage (discrepancies between the trade signals and the actual executions). Tax-deferred IRA accounts at 2x, 3x, and 5x are available. If using a taxable account, you'll need to calculate the growth after taxes have been paid each year.

How does Jim’s DDD trading plan work?

Jim is well known for his accurate short-term market forecasts which are based on his work with the Dow 3-day trends (many pros subscribe to his Tactical Trading Outlook advisory just to get these forecasts). And Jim’s 3-day trend strategy is at the heart of his new Dow Double Diamond trading plan.

Jim’s 3-day trend turns up on higher highs and higher lows, or turns down on lower highs and lower lows, over a 3-day period starting with Monday. When this trend turns up, the market usually moves higher over the following days. And when it turns down, the market usually moves lower over the following days.

Why does the market behave this way? Because when the market moves higher over 3 consecutive days, investors tend to buy more. Conversely, when the market moves lower over 3 consecutive days, investors tend to sell more. It’s just human nature.

But by default, no 3-day signals can be given on Monday or Tuesday. That makes the 3-day trend signals less accurate at the beginning of the week (as they are extending from Friday over the weekend). To compensate, Jim added a weekly filter that uses weekly buy-sell signals as exit-reentry points, and under specific conditions, as “stops.”

Additionally, Jim applies a weighted importance to certain days, since Fridays and Mondays behave differently than mid-week days. For instance, important lows rarely occur on Fridays, and Mondays are more often “up days” than “down days.”

Finally, Jim uses a hard stop of 3%, which becomes 6% at 2:1 leverage and 15% at the 5:1 leverage. But the 3% hard stop was triggered on only two occasions during the 28- month test period. The average stop loss was much smaller, actually just 1.35%.

In actual practice, the DDD Plan is rarely in cash. Mostly it's long or short and usually moves directly from long to short, or vice versa. And while it's been designed to capture the back-and-forth movements of today's choppy market, it can also capture more sustained trends, either up or down. That makes it an all-weather plan you can use for years.

For a complete explanation of the DDD Plan, its development history, and back- tested results, see Back Testing.

What is the win/loss ratio of the Dow Double Diamond Plan?

In the 28-month back-test period, Jim’s DDD Plan triggered a total of 66 trades. Of these, 36 were winners and 28 were losers, for a 56% win rate. What’s more, the average gain was nearly twice the average loss at 2.65% to 1.35% (double these numbers for 2:1 leverage and quintuple them for 5:1 leverage). More winners than losers and greater gains than losses; that’s a successful wealth-building formula!

Is Jim’s Dow Double Diamond Plan for speculation only?

Not at all. Jim created the DDD plan to be a relatively low- risk, high-speed wealth builder. During the more accurate back-testing period plus the live trading (based on 10- minute chart data) Jim measured the 12-month returns from each trade entry -- July of 2002 through August of 2005, a total of 91 twelve-month periods -- and found no losing years. Because the Dow Diamonds are, by nature, diversified, and because Jim maintains strict risk controls, and most important, because the DDD plan has proved successful in over 8 years of back testing and live trading, you should be able to comfortably commit a large portion of your investment capital to it. The DDD plan can be used for conservative, moderate, and aggressive growth objectives. Just be aware that, with leverage, both your gains and losses are multiplied by the leverage factor.

Aren’t the risks a lot higher with leverage?

There is risk in all stock market trading. But primarily the volatility, not the risk, is higher with leverage. The risk level increases only if you follow the plan briefly or inconsistently, or if a rare cataclysmic event occurs that causes the market to crash (in such cases the stop-loss orders may be ineffective). Remember, you will have both winning and losing trades. And over the short-term, the plan can potentially show a negative return. But over time, the winners should be both bigger and more frequent than the losers. And therefore if you stick with the plan you are likely to compound your investment(s) into the wealth you desire.

Can the DDD Plan be used for retirement income?

Yes, and it is a great solution for retirees needing to boost their income. The plan is basically pretty conservative with tight risk controls. The back testing has shown small losses, small drawdowns, and most important, no losing years. For income, Jim recommends you simply follow it on a straight 1:1 cash basis (regular trading account with no leverage). Over the 8-year test period, the DDD Plan averaged a 17% annual gain (no compounding). And over the more accurate 28-month test period, it averaged a 22% annual gain (no compounding). Past performance is not necessarily indicative of future returns, but if you achieve either one of these back-tested returns, you’ll get 3 or 4 times the income of traditional income investments.

What’s the advantage of using a mechanical trading plan?

Two reasons: to eliminate human error and to bring certainty to your results. Jim’s DDD Plan is based on a computer program that recognizes certain Dow setups. When it gives a signal, you trade. It’s impossible for you to mess it up. And that eliminates losses caused by emotional decision-making, poor judgment, or just making the wrong call. And since the Plan is right more often than wrong, and also produces bigger winners than losers, the inevitable result is that your money grows. That brings “certainty” to your investment results and enables you to plan, today, how much wealth you’ll have in the future.

What if I’m too busy to make the trades; can I still participate?

Yes. As a Dow Double Diamond member you can open an auto- trade account. You'll still be in control of your money, but the broker will follow the DDD system for you. The advantage is that you don’t have to read Jim's e-mail briefings, watch the market, or worry about making the trades on time. All that is done for you by the execution broker and your results will be close to Jim’s published results. You can get 2x, 3x and 5x DDD execution programs for a regular taxable account or a tax-deferred IRA account (send us an email and we will provide the name of a broker offering this service).

Why should I subscribe to Jim’s Dow Double Diamond Advisory Service?

It’s the only way to get Jim’s Dow Double Diamond trades. And thus the only way to get the high annual growth rates Jim’s Plan is capable of producing. Jim does all the work for you. There are no charts to read, no computer programs to run, and no calculations to make. You’ll get Jim’s daily DDD e-mail briefings in which he recaps the current situation, alerts you to approaching trades, and provides easy-to-follow trade instructions as they occur. You need only check your email once or twice a day. On average, you’ll make just 2 or 3 roundtrip DIA trades per month. Also, as a subscriber, you will have the option of using an execution account.