YACC Software, Inc. Trading Models

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1 Terminology Capital Change Capital Change = Trade Capital x ETF % Change. It is the U.S. Dollar value of the gain or loss of a trade. Cash Retained The reserve of cash which is not available for trading. Cash retained is built up until it equals one third of the initial investment capital. It can grow larger based on the retain/reinvestment option. Days Length of a trade in consecutive days when trading is open on an exchange. It is not calendar days. For example, a buy on a Friday and a sell on a Monday is considered one day. DUST An exchange traded fund (ETF). It moves inversely to the GDX by a factor of three so if the GDX dropped by 2% then DUST would advance by 6%. It is used by the precious metals enhanced hybrid model for short ERX ERY ETF An exchange traded fund (ETF). It is leveraged to the XLE by a factor of three so if the XLE increased by 2% then ERX would advance by 6%. It is used by the energy sector enhanced hybrid model for long An exchange traded fund (ETF). It moves inversely to the XLE by a factor of three so if the XLE dropped by 2% then ERY would advance by 6%. It is used by the energy sector enhanced hybrid model for short An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETF % Change The change in value of the traded ETF between the buy price and sell price. Final Capital Final Capital = Trade Capital + Trade Reserves + Cash Retained. It is the total capital allocated to the model. If only one model was traded in a brokerage account, it would be the total cash value of the brokerage account. Gain Also referred to as ETF % Change. It is the difference between the buy and sell price in a trade and is typically expressed as a percentage. yaccsoftware.com Page 1

2 Gain Probability The computed probability of a gain for a particular trade type in a particular model. For example, if the probability of an SP#2 trade for the PMEH model is 88.9%, then there is an 88.9% chance of a gain or an 11.1% chance of a loss for this trade. GDX An exchange traded fund (ETF). It tracks the GDM index (NYSE Arca Gold Miners Index). It is used by the precious metals long only model for all long GDXJ An exchange traded fund (ETF). It tracks the Market Vectors Global Junior Gold Miners Index (MVGDXJTR). It is used by the junior miners long only model for long HUI The HUI is the NYSE Arca Gold BUGS Index. It is a modified equal dollar weighted index of companies involved in gold mining. BUGS indicates that the companies do not hedge their gold sales (Basket of Unhedged Gold Stocks). Initial Cash Retained Always zero. Before the very first trade, Cash Retained is zero. As profits are accrued, Cash Retained grows. Initial Investment Capital The starting capital selected by the client for a particular model. The minimum investment capital per model per brokerage account is U.S. $900,000. Initial Trade Capital Initial Trade Capital = Initial Investment Capital / 3. It is the trade capital to be used for the first trade. Initial Trade Reserves Initial Trade Reserves = Initial Trade Capital x 2. It is the reserve to be used for up to two subsequent trades. Because of the T+2 rule, ETF trades need two days to settle. The Trade Reserves plus the Trade Capital provide the funds for a trade on three consecutive trades. IWM IXE An exchange traded fund (ETF). It tracks the RUT index (Russell 2000 Index). It is used by the small cap long only model for long The IXE is the S&P Energy Select Sector Index. It is a modified market capitalization-based index intended to track the movements of companies that are components of the S&P 500 and are involved in the development or production of energy products. It is one of eleven select sector indices. JDST An exchange traded fund (ETF). It moves inversely to the GDXJ by a factor of three so if the GDXJ dropped by 2% then JDST would advance by 6%. It is used by the junior miners enhanced hybrid model for short yaccsoftware.com Page 2

3 JNUG An exchange traded fund (ETF). It is leveraged to the GDXJ by a factor of three so if the GDXJ increased by 2% then JNUG would advance by 6%. It is used by the junior miners enhanced hybrid model for long License Fee The fee assessed by YACC Software for the use of its trading system. YACC assesses a fee of 15% of the net gain (after brokerage commissions) on each trade to cover R&D, software maintenance, and operational costs. A fee of 10% of the net gain is YACC's profit so the total fee is 25%. There are no other costs or fees levied by YACC and there are no license fees on losing trades. NDX The NDX is the Nasdaq 100 Index. The index includes 100 of the largest domestic and international nonfinancial securities listed on the NASDAQ stock market based on market capitalization. Net Change Net Change = Capital Change - License Fee. It is the client's profit or loss on a trade. Net Return The return of the model after licensing fees have been subtracted. It is typically expressed as an annual return that is dependent upon a retain/reinvest selection. The Net Return is probably the best indicator of the success of a trading model (along with Final Capital). NUGT An exchange traded fund (ETF). It is leveraged to the GDX by a factor of three so if the GDX increased by 2% then NUGT would advance by 6%. It is used by the precious metals enhanced hybrid model for long Partial A trade type. A partial may be either long or short (identified by the partial type code). The code itself is not important (it is used by the trading software) but it is linked to a set of attributes that are listed in the model statistics section. An example would be LP#1 or SP#4. It is called a partial because it uses only part of the final capital for the trade. Prepaid License Fee Deposit License fees must be paid in advanced and are kept as a deposit. As profitable trades complete, the License Fee is subtracted from the Prepaid License Fee Deposit. Initially, license fees are 10% or 20% of the Initial Investment Capital. When the license fee deposit drops below a threshold then additional prepaid license fees must be remitted. QQQ An exchange traded fund (ETF). It tracks the NDX index (Nasdaq 100 Index). It is used by the nasdaq long only model for long Retain Rate The rate at which cash is retained from profitable trades. Initially, cash is retained at 100% until it equals one third of the Initial Investment Capital, after which it is retained at 0%, 50%, or 100% as specified by the client. yaccsoftware.com Page 3

4 RUT SPX The RUT is the Russell 2000 Index. It is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The SPX is the S&P 500 Index. It includes 500 leading companies and captures approximately 80% coverage of available market capitalization. This index is considered the best single gauge of large cap U.S. equities. SPXL SPXS An exchange traded fund (ETF). It is leveraged to the SPY by a factor of three so if the SPY increased by 2% then SPXL would advance by 6%. It is used by the large cap enhanced hybrid model for long An exchange traded fund (ETF). It moves inversely to the SPY by a factor of three so if the SPY dropped by 2% then SPXS would advance by 6%. It is used by the large cap enhanced hybrid model for short SPY An exchange traded fund (ETF). It tracks the SPX index (S&P 500 Index). It is used by the large cap long only model for long SQQQ An exchange traded fund (ETF). It moves inversely to the QQQ by a factor of three so if the QQQ dropped by 2% then SQQQ would advance by 6%. It is used by the nasdaq enhanced hybrid model for short T+1 T+2 T+3 TNA The settlement date for securities transactions such as an options trade. It refers to the obligation in the brokerage business to settle securities trades by the first day following the trade date. The settlement occurs when the seller receives the sales price (cash) and the buyer receives the options. The new settlement date for securities transactions such as a stock or ETF sale as of September 5, If refers to the obligation in the brokerage business to settle securities trades by the second day following the trade date. The settlement occurs when the seller receives the sales price (cash) and the buyer receives the shares. This new two day settlement renders the T+3 settlement obsolete. The settlement date for securities transactions such as a stock or ETF sale. It refers to the obligation in the brokerage business to settle securities trades by the third day following the trade date. The settlement occurs when the seller receives the sales price (cash) and the buyer receives the shares. An exchange traded fund (ETF). It is leveraged to the IWM by a factor of three so if the IWM increased by 2% then TNA would advance by 6%. It is used by the small cap enhanced hybrid model for long yaccsoftware.com Page 4

5 TQQQ An exchange traded fund (ETF). It is leveraged to the QQQ by a factor of three so if the QQQ increased by 2% then TQQQ would advance by 6%. It is used by the nasdaq enhanced hybrid model for long Trade Capital It is the money allocated for the next trade. Trade Count (Trades) The number of individual trades. Trades are usually grouped by calendar year. They may also be expressed as a sum of losing trades and gaining trades. Trade Date The day that the trade completed (the ETF was sold). It is typically expressed as mm/dd/yyyy (ex. 08/04/2008). Trade Number The code used to identify the trade. It is expressed as year-n when n is an integer starting at one for each year and incrementing by one (ex ). Trade Reserves Trade Reserves = Trade Capital x 2. It is the reserve to be used for up to two subsequent trades. Type Code Identifies the trade as either a long or short partial. It also has a code indicating the partial type. The code itself is not important (it is used by the trading software) but it is linked to a set of attributes that are listed in the model statistics section. An example would be LP#1 or SP#4. TZA An exchange traded fund (ETF). It moves inversely to the IWM by a factor of three so if the IWM dropped by 2% then TZA would advance by 6%. It is used by the small cap enhanced hybrid model for short Velocity This is a vector representing the speed and direction of an index. It can range from negative infinity to positive infinity. A model that experiences high velocity has a higher number of profitable trades. Volatility This is a scalar representing the movement of an index over time. It can range from zero to positive infinity. High average volatility or high maximum volatility in a model produces the best returns. XLE Year An exchange traded fund (ETF). It tracks the IXE index (S&P Energy Select Sector Index). It is used by the energy sector long only model for long The calendar year associated with the trades. yaccsoftware.com Page 5