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Investing/Strategies / Mechanical Investing
|Subject: Re: Blending at a Whole New Level||Date: 7/23/2008 10:05 PM|
|Author: Zeelotes||Number: 211442 of 254095|
does this come close to your switch signal ?
Yes, I'd say that it would do the trick just fine. Very simple... even for the whiners who desire to be spoon fed. :)
Jim raises the key point I've been working on here:
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.
I found the high level of whipsaws to be a major hurdle to me personally adopting this approach so I wanted to see what would happen if you did not allow a switch within one month. These are the dates of the trades that resulted using this approach. You'd actually make the switch the next day.
Here is the table of stats comparing the methods:
Weighted No Weight Weighted
So you drop from 5.5 trades per year to 3.9. I can live with that.
Now, the question is, how does this work compared to the more active switching? I ran a new test with these trade dates using the Sharpe / Sharpe/GSD as the basis of screen selection and got the following results:
No Sig in
You'll note that the return in the bullish period actually increases from a CAGR of 54% to 59%, while it drops the Ulcer Index from 5.48% to 5.33%. Granted that is not much, but my fear was that the opposite would happen.
Take home message: You can remove a whole lot of the whipsaw by simply requiring that the trade be limited to no more than one a month. Many times this means that a movement back to the other side is simply removed and the previous signal stays in force. Very nice when that happens.
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.
I like your thinking here. Any ideas on concrete signals to act on. Post them or send via email and I'll test it. Be sure they are very KISS lest we cause a revolt from the masses. :)
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.
I doubt very much that this is the case. I've not tried much simply due to the fact that one run of this whole method takes about 14 hours. There are probably better methods out there that we have not tried. And I'm convinced that a method that got the signals down to once a year or less would work even better.
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".
I love this idea even more, but only if we are still talking few signals a year. That is the key point. Too much whipsaw and the results become not worth the hassle. I can try the signal I devloped last year related to your suggested example. Can't recall the # of signals on that.
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