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Subject:  Re: Blending at a Whole New Level Date:  8/1/2008  6:08 PM
Author:  StevnFool Number:  211656 of 258209


I've arrived a bit late to this thread. I've been on vacation the last two weeks with limited internet access and just look at the feast I've returned to. I'm still quite a bit behind in my reading but I just had to read all 46 posts in this thread.

I saw your comments about people focusing on the less important part of the research. I'll try to comment on the important part.


1. Lets say one decided to go with this concept and use Sharpe to select the screens for the bull period and Sharpe/GSD for the bear period. When selecting screens for say the bull period, I assume you look at the Sharpe Ratio of each screen using all of it's backtest history and not just the "bull" part of the backtest history? Can you confirm that my understanding is correct.

2. I may not have fully absorbed all 46 posts so please excuse me if the answer is clearly stated in this thread, but when you were ranking each measure for selecting screens for bull and bear periods, did you alway rank them by resulting CAGR or by resulting Sharpe?


Elan raises the question of over curve fitting. I would to some extent share his concerns, but I think that this may well fall into the category of what Jim (mungofitch) calls harmless over tuning. In your first post in this thread, Sharpe came out as the best measure for bull periods and Sharpe/GSD for bear periods. In subsequent posts, I realise that some other measure may have come out on top, but I think these ones remained somewhere in the front runners. Let's assume we decide to go with these one. Now lets assume that the timing signal has absolutely no predictive power whatsoever, what then?

Well lets see now. When this useless signal tells us its a bull market, we would select our screens using the Sharpe Ratio. Well that's what most of us considered the best measure for selecting our screens for all markets up until last November so that can't be too bad.

Again, what would we do when this useless signal tells us it is a bear market? We would select our screens using Sharpe/GSD. Well the testing last November showed that this was better than Sharpe for selecting screens for all markets.

My conclusion is that this fits Jim's ideal of timing. Great if it works and harmless if it doesn't.