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Investing/Strategies / Mechanical Investing
|Subject: Re: Blending at a Whole New Level||Date: 7/23/2008 1:10 PM|
|Author: mungofitch||Number: 211431 of 254142|
Wow! You guys all focus on the thing that is least important, at least
in my view. It is not so much what signal you use that is important, but
the fact that it is possible to use it, and raise the blending concept to a whole new level.
Hey, the thread is yet young! I'm just askin' stuff one step at a time.
As I understand it, the number of trading days per year would roughly
equal 12 plus the number of signals per year. Trading days from signals
would probably involve higher turnover than trading days from monthly
cycle, because you'd probably be switching screens entirely. So, the
signal frequency is pretty important from a friction point of view.
In fact, I've been looking at a similar approach.
Note 3rd paragraph here
One of the things that interested me is this: as you say, a simple
timing signal is all you need, anything that works "well enough" and
doesn't have very many signals. However, strictly speaking, it
doesn't matter whether the signal distinguishes up markets from down
markets. In principle, any signal which distinguished which kinds of
screens would do well could work just as well. Obviously rising and
falling markets are the biggest discriminators, but in theory you
could slice things differently, for example if you had a signal which
told you whether large or small caps were in vogue, or whether
or not momentum was working lately, or whether growth stocks were
in the ascendency.
In fact, it's possible that part of the reason that your method works
so well is that the signal you chose (being breadth based) may be
a better distinguisher of successful screen styles than it is of
rising and falling markets. The fact that the market falls
on average during your bear signals is not really necessary.
Along those lines, it would make sense to try a wide variety of
different simple timing signals for this, even if they were all of
similar merit based on frequency and accuracy in predicting an index,
since they may vary quite widely in their ability to predict which
sets of screens are likely to do well in the next month.
Given your great success with the breadth model, this may not be
worthwhile, since you may already have hit upon the one that works best.
But, throwing a few other signals at it might be worth the time.
Another thought along the same lines: given that there is no real
need to distinguish up and down markets, this drives home the point
that the number of states does not have to be two. As an example,
it might work well to have a blend for each of "flattish bond market",
"rising bond market", and "falling bond market".
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