No. of Recommendations: 2
Build a blend of screens that do well overall, but do particularly well
in bull markets, and do the same for bear markets. A nice diverse
blend in each case---a few stocks from quite a few different screens.
Don't worry about overtuning, just get two blends, one of which is
full of bull market winners, and one full of bear market best-you-can-do.


If I understand you correctly, the screen selection would go something like this:

1. Select a pool of candidate screens that do reasonable well all of the time.
2. From this, select a subset of best screens for bull periods.
3. Similarly from the pool of screens selected in 1, select a subset of best screens for bear periods.
4. Figure out some method to switch between.

I like this logic, but it is not so easy to implement in real life. I tried doing this a few years ago. The issues I came up with were:

1. The pool of screens I trusted as "reasonably good" for all periods was pretty small.
2. I ended up with a lot of overlap between the bull and bear screens.
3. The backtested gain (relative to a blend) was not as much as I would like.
4. If you switch much, it messes up a HTD strategy for minimizing trading.

My final conclusion was just to construct the best blend I could; use HTD to minimize trading and stick with it through bull and bear.

I suppose I should say that I think the concept of a switch is OK, but it introduces the ability to do a good bit of extra tuning i.e.:

* The backtest of each half of the switch is cut approx in half so is less robust.
* You can tune by picking various indices and screens to switch on.
* You can tune the cut-off

All of this really means that the burden of stress testing the backtest is so much greater - i.e. it is that much more difficult to figure out if the backtest has predictive value.

Yes - a genuine Irishman. Born in Ireland and lived all my life here so far except for a few vacations.
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