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Investing/Strategies / Mechanical Investing
|Subject: Re: Blending at a Whole New Level||Date: 8/5/2008 6:16 PM|
|Author: StevnFool||Number: 211762 of 264770|
One challenge I see is that for most of us, daily backtest results are only available through the GTR1 backtester which typically has a backtest end date somewhere between 4 months and 16 months in the past. this obviously would be no use to select screens in real time at a transition point. Somewhat better is Jamie's monthly backtester, but it can be several months out of data too. It looks like there are some considerable challenges here to do this in rela time.
If you have the interest in testing it, I have an idea which would make it a lot easier for anyone to select the screens for the bull and bear blend, but I don't know how much it would hurt returns.
Your idea is based on selecting screens at transition points. Lets say the indicator turned bullish today, I understand that your idea would be to select the 5 top screens sorted by Sharpe Ratio using six years of backtest data up to today for ranks 1 - 4.
I don't have backtest data up to today, but I can run any screen through the GTR1 backtester and get data up to the end of 2007. Lets assume that the last bullish indicator prior to the end of 2007 was 1st August 2007 (I just pulled this date out of the air). If I selected my 5 screens to run now by filter by Sharpe Ratio using 6 years of backtest data ending 1st Aug 2007 (the last bullish transition point for which I have data available to me), would it be reasonable to expect similar returns going forward.
If you don't have the interest or inclination to test this, I would be interested to see how much the blend changes from one bullish transition point to the next bullish transition point and similarly from one bearish transition point to the next bearish transition point.
If this method works, it may be optimal to use somewhat longer lookbacks. By this I mean that lets say in a worst case, the most recent transition point I have data for is 2 years old. A 3 year lookback ending 2 years ago may be less relevant today than a 5 year lookback ending 2 years ago.
Just a few thoughts which may make this more accessible to anyone without the need for a massive joint project, but some testing might discredit the idea.
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