The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Mechanical Investing


Subject:  Re: Blending at a Whole New Level Date:  8/5/2008  1:17 PM
Author:  StevnFool Number:  211756 of 259686

In an earlier post, you said:

The bull signals have a lookback of six years of data. The bear signals have a lookback of three years of data. I found these to be more or less optimal. Using all the history, however, does not result in something significantly different than what I've posted. The lookback length, IOW, is not that important.

And now:

This is partly due to the advantage gained from re-selecting screens at the indicators transition points. I have not yet been able to arrive at a good explanation of why this improves on returns so much, but it most definitely does.

If using all of the data for selecting screens for you bull and bear blends, one would expect that as time goes on, the results would converge towards "the best blends" and that the timing of the re-selecting process should matter less and less. You have however found that the timing matters a great deal.

Can you confirm that the improved results of re-selecting screens at transition points were all achieved using the shorter lookbacks of 6 and 3 years respectively?

Would you expect that in this case using all history would actually harm the backtested result?

In general, I am more comfortable with using more history for screen selection (i.e. longer lookback), and when you said, "The lookback length, IOW, is not that important.", I was planning to use the maximum lookback, but what you are showing now may suggest that a shorter lookback is better. I would like your comments on this.

My own opinion is that I'd still choose the one on the right despite the lower Sharpe. Partly I would do this due to the pratical implications of the reduced rebalance points, but also because I don't see the UI getting hurt by the reduced trading. Plus, when I compare the yearly returns I don't see something massively