Quote Originally Posted by TraderD View Post
2008 stats look particularly intriguing here. For example, assuming the model is roughly symmetric in its long/short settings, why would it perform much poorer (on most ETFs) in 2008 (down trending) than in 2009 (up trending)? I would guess a closer look at the trades is needed to answer that. Some candidates for inspection: volatility threshold (criterion for short entry), trade duration, etc.

Trader D
In fact, you are not totally correct:

First, the model is not symmetric, because the MF is not and the model follows the MF.
Then, I would say that the model performed better in 2008 than in 2009: it outperformed the market in 2008 and slightly underperformed it in 2009. Both were strongly trending market when overbought became more overbought and oversold became more oversold.

This means that in a model that has OB/OS triggers, in a strong market, the model will stay on the side-lines after having sold in OB or covered in OS, just to see the market continuing in the same direction.

Finally, as I wrote yesterday, in 2008/2009, the data was 20% different, both in term of tickers and in terms of weight. The question is: is 20% difference in data important or not? I do not know, but I know that when I switch from a fixed weight to a capitalized weight calculation, the results drastically degrade to the point that the model becomes impossible to use. The MF calculation method must follow the ETF price calculation method. But in 2008/2009, we had a 20% difference.

That being said, I'll write some code to automatically study all the trades year by year and ETF by ETF


Pascal