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URL:  http://boards.fool.com/wmhays-asked-does-this-come-close-to-your-switch-26840572.aspx

Subject:  Re: Blending at a Whole New Level Date:  7/23/2008  10:05 PM
Author:  Zeelotes Number:  211442 of 252561

wmhays asked:
does this come close to your switch signal ?

http://stockcharts.com/h-sc/ui?s=$NAHL&p=D&yr=0&mn=11&dy=0&i......


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.

 Weighted                    
Date Signal # of Days
12/9/1988 BULL 203
6/30/1989 BEAR 186
1/2/1990 BULL 30
2/1/1990 BEAR 34
3/7/1990 BULL 30
4/6/1990 BEAR 31
5/7/1990 BULL 51
6/27/1990 BEAR 211
1/24/1991 BULL 306
11/26/1991 BEAR 162
5/6/1992 BULL 36
6/11/1992 BEAR 30
7/11/1992 BULL 44
8/24/1992 BEAR 52
10/15/1992 BULL 131
2/23/1993 BEAR 281
12/1/1993 BULL 118
3/29/1994 BEAR 65
6/2/1994 BULL 30
7/2/1994 BEAR 39
8/10/1994 BULL 56
10/5/1994 BEAR 97
1/10/1995 BULL 273
10/10/1995 BEAR 267
7/3/1996 BULL 118
10/29/1996 BEAR 30
11/28/1996 BULL 109
3/17/1997 BEAR 51
5/7/1997 BULL 174
10/28/1997 BEAR 64
12/31/1997 BULL 140
5/20/1998 BEAR 42
7/1/1998 BULL 30
7/31/1998 BEAR 94
11/2/1998 BULL 42
12/14/1998 BEAR 30
1/13/1999 BULL 28
2/10/1999 BEAR 29
3/11/1999 BULL 140
7/29/1999 BEAR 30
8/28/1999 BULL 30
9/27/1999 BEAR 32
10/29/1999 BULL 140
3/17/2000 BEAR 30
4/16/2000 BULL 30
5/16/2000 BEAR 50
7/5/2000 BULL 30
8/4/2000 BEAR 30
9/3/2000 BULL 30
10/3/2000 BEAR 101
1/12/2001 BULL 40
2/21/2001 BEAR 57
4/19/2001 BULL 61
6/19/2001 BEAR 120
10/17/2001 BULL 128
2/22/2002 BEAR 251
10/31/2002 BULL 49
12/19/2002 BEAR 91
3/20/2003 BULL 413
5/6/2004 BEAR 30
6/5/2004 BULL 33
7/8/2004 BEAR 48
8/25/2004 BULL 203
3/16/2005 BEAR 64
5/19/2005 BULL 144
10/10/2005 BEAR 30
11/9/2005 BULL 189
5/17/2006 BEAR 49
7/5/2006 BULL 30
8/4/2006 BEAR 30
9/3/2006 BULL 183
3/5/2007 BEAR 30
4/4/2007 BULL 111
7/24/2007 BEAR 42
9/4/2007 BULL 45
10/19/2007 BEAR 276
7/21/2008 BULL

Here is the table of stats comparing the methods:

           Weighted                 No Weight                 Weighted            
BULL Min 2 BULL Min 1 BULL Min 28
Max 413 Max 509 Max 413
Median 42 Median 55 Median 61
BEAR Min 2 BEAR Min 1 BEAR Min 29
Max 281 Max 272 Max 281
Median 29 Median 29 Median 45
1/3/1978 Total # 160 Total # 156 Total # 118
7/21/2008 # / Year 5.2 # / Year 5.1 # / Year 3.9

Weighted No Weight Weighted
BULL Min 2 BULL Min 1 BULL Min 28
Max 413 Max 509 Max 413
Median 40 Median 53 Median 58.5
BEAR Min 2 BEAR Min 1 BEAR Min 29
Max 281 Max 272 Max 281
Median 29 Median 28 Median 49.5
1/1/1989 Total # 108 Total # 100 Total # 76
7/21/2008 # / Year 5.5 # / Year 5.1 # / Year 3.9

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
One Mth
Begin Date: 1/2/1989 1/2/1989
End Date: 11/9/2007 11/9/2007

Bullish: Sharpe Sharpe
Desc Desc
Bearish: Sharpe/GSD Sharpe/GSD
Desc Desc
CAGR 48.58% 47.48%
GSD 19.17 19.61
Sharpe 2.07 1.99
Ulcer Index 5.48% 5.33%

Bullish:
Reb Win % 78% 84%
Screen Win % 68% 76%
Bearish:
Reb Win % 83% 79%
Screen Win % 71% 71%

Yrs >= Index 89.47% 89.47%
Yrs >= 0 94.74% 100.00%
Drawdown -27.57% -27.57%
Bullish 54.28% 59.23%
Bearish 30.44% 29.89%

Years ROI ROI
1989
67.99% 67.99%
1990 0.84% 4.45%
1991 93.46% 92.93%
1992 69.87% 67.97%
1993 42.28% 44.85%
1994 30.27% 25.97%
1995 91.62% 72.75%
1996 39.90% 41.37%
1997 41.36% 43.55%
1998 36.26% 30.93%
1999 144.16% 127.36%
2000 77.02% 81.13%
2001 37.17% 37.41%
2002 35.77% 35.77%
2003 36.15% 36.15%
2004 43.54% 41.12%
2005 56.08% 57.70%
2006 15.58% 12.73%
2007 13.03% 19.01%

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.

Jim added:
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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