Model discussion

[Neil Stoloff]

Compared to the potential benefits, the work that I'd have to carry out to bring this idea to life does not make this project one of the most attractive.

Pascal

This is disappointing on more than one level, Pascal. At the beginning of my first post in this thread I asked if using ETFs with a long-term edge would be worth considering for the robot. Your post above would have answered that question, sparing me the time and energy that I put into my later posts.

This must be how Lyndon Johnson felt during the Vietnam war when he kept sending in more soldiers with the hope that those who had died did not die in vain. (Alas, they did.) I won't belabor things, but at least let me see if I can gain a better understanding of this outcome. Perhaps others can pipe up to relieve you as the sole respondent.

Regarding the potential benefits of my idea, let's use your nine sectors as a proxy. The potential (or best possible) benefit would be seen when the best-performing model sectors and the best-performing sectors are the same. Looking at your 2010-11 numbers, the model's average two-year return for all nine sectors is 48.3%, whereas the average of the model's top-three returns is 72.1%. That's a difference of 23.8 percentage points, or a 49.3% greater return (24.6% annualized). Factor in the effects of compounding, and your conclusion makes no sense to me unless you understated the impracticality of implementing the idea (meaning that it's virtually impossible). Honestly, Pascal, I have a feeling -- from all of your replies -- that you gave little or no thought to possible ways that my idea might work, but only to the reasons why it wouldn't. For example:

If the limitations that you cited above do not apply to your nine sector ETFs -- the ones that you have been able to evaluate in detail and are considering for trading -- then my idea might be applied to them in a limited way. Although none of those ETFs are in sectors that are current SweetSpot picks, some of them have been in the past and any of them could be in the future. If and when they are, they might be worth considering for robot trading. Or even better, maybe someone knows of a proven method -- SweetSpot aside -- for ranking the nine sectors at any given time in terms of their long-term prospects. How could it not be worthwhile to explore such a potentially powerful overlay?

Respectfully,

Neil

[Pascal]

This is disappointing on more than one level, Pascal. At the beginning of my first post in this thread I asked if using ETFs with a long-term edge would be worth considering for the robot. Your post above would have answered that question, sparing me the time and energy that I put into my later posts.

Neil,


I am sorry that you are disappointed. If you go back to our discussion, you will note that I tried to understand what you needed to make your idea work and I explained that I only had 10 ETFs for which a MF model was existing. It is only in your last post that you implied the need to have 100 ETFs (because 100 Sectors.) So, it is only then that I realized this was not practical. I simply could not do such a work.

This must be how Lyndon Johnson felt during the Vietnam war when he kept sending in more soldiers with the hope that those who had died did not die in vain. (Alas, they did.) I won't belabor things, but at least let me see if I can gain a better understanding of this outcome. Perhaps others can pipe up to relieve you as the sole respondent.

Regarding the potential benefits of my idea, let's use your nine sectors as a proxy. The potential (or best possible) benefit would be seen when the best-performing model sectors and the best-performing sectors are the same. Looking at your 2010-11 numbers, the model's average two-year return for all nine sectors is 48.3%, whereas the average of the model's top-three returns is 72.1%. That's a difference of 23.8 percentage points, or a 49.3% greater return (24.6% annualized). Factor in the effects of compounding, and your conclusion makes no sense to me unless you understated the impracticality of implementing the idea (meaning that it's virtually impossible). Honestly, Pascal, I have a feeling -- from all of your replies -- that you gave little or no thought to possible ways that my idea might work, but only to the reasons why it wouldn't.

Your idea might work as the two years example suggests. But in reality you do not need me to apply it to the 10 ETFs. I believe that you probably have gained an edge by merging two ideas into one trading system. We will be supplying Buy/sell signals and RT data on the 9 ETFs and it will be up to each trader to select the ETF he prefers to trade. So, I indeed believe that your selection through the use of the SweetSpot method is just fine.

We cannot incorporate Sweetspot into a trading system ourselves here because of intellectual property right issues. However, any individual can do that and I greatly encourage it.

If I come with some other selection criteria for each ETF, I will post them. For exaple, we tested a 20D Price RS selection criteria, but we might simply trade the three ETFs whose price RS has been the worst for the past 6 months. I did not test that idea, but it would be worthy to do it.

For example:

If the limitations that you cited above do not apply to your nine sector ETFs -- the ones that you have been able to evaluate in detail and are considering for trading -- then my idea might be applied to them in a limited way. Although none of those ETFs are in sectors that are current SweetSpot picks, some of them have been in the past and any of them could be in the future. If and when they are, they might be worth considering for robot trading. Or even better, maybe someone knows of a proven method -- SweetSpot aside -- for ranking the nine sectors at any given time in terms of their long-term prospects. How could it not be worthwhile to explore such a potentially powerful overlay?

Respectfully,

Neil

I think that it is a good idea. You did the work for the past two years, which is the time period for which reliable data is available on the 9 ETFs. So, if anyone wants to check another ranking/selection method for the 9 ETFs, I can supply the set of signals generated for the 9 ETFs in the past two years.


Pascal

[Pascal]

Looking at the suggestion above, I see where some confusion could emerge.

Date/Time and Price-- These should all refer to the time and price recorded when the signal changed.

Thank you Nickola.

I am working on your suggestion.



Pascal

[senco]

Pascal,
For clarification on the post about portfolio simulation of the 9 ETFs from 3-1-2012:
- >>When for a given day there is the possibility to choose one ETF instead of another, the selection is made on the 20D Price RS.
Does this statement relate to the day of position entry only? My interpretation is 'yes', when a position is entered it is held until a state change, and one does not switch ETFs in the middle of a trade due to 20D RS

- Two Positions, Three Positions - does this relate to the total number of positions, or to the total number of positions in the same direction?

Intuitively, one could obtain higher gains as well as a better reward/risk by dividing the capital allocated to the strategy by three, and allow up to three positions in each direction. For example, following 3/6/12 signals we would have 3 short and 2 long positions. Portfolio-margin accounts will usually make this easy to handle.

[Pascal]

Pascal,
For clarification on the post about portfolio simulation of the 9 ETFs from 3-1-2012:
- >>When for a given day there is the possibility to choose one ETF instead of another, the selection is made on the 20D Price RS.
Does this statement relate to the day of position entry only? My interpretation is 'yes', when a position is entered it is held until a state change, and one does not switch ETFs in the middle of a trade due to 20D RS
.

This relates to the day of position entry only.

- Two Positions, Three Positions - does this relate to the total number of positions, or to the total number of positions in the same direction?

This relates to the total number of positions

Intuitively, one could obtain higher gains as well as a better reward/risk by dividing the capital allocated to the strategy by three, and allow up to three positions in each direction. For example, following 3/6/12 signals we would have 3 short and 2 long positions. Portfolio-margin accounts will usually make this easy to handle.

In fact, after Neil's discussion, I noted that there can be many ways to select the best ETFs in a selection of 9 ETFs. There are also many possible ways to organise a portfolio?

In such conditions, I believe that the best is to provide the trade signals on each ETF independently and let people select those that they prefer.


Pascal

[pdp-brugge]

It is interesting to see the following:
- There are more Buy than Short trades, because there is an ATR filter set on short trades.
- Short trade have a winning/losing days ratio lower than 1, even though the trade outcome is in general positive. This mean that short trades are more volatile than long ones. We might also expect that most of the drawdowns will occur during missed short trades.

Pascal,

This quote comes from a post made on February 26.

Could you disclose the ATR filter you used for the filter on the short trades?
Did you consider to use an ATR filter on the long trades too?
If yes, what was your conclusion about an ATR filter for the long side?

PdP

[Pascal]

Pascal,

This quote comes from a post made on February 26.

Could you disclose the ATR filter you used for the filter on the short trades?
Did you consider to use an ATR filter on the long trades too?
If yes, what was your conclusion about an ATR filter for the long side?

PdP

Sorry, but I need to hold-off from responding to model "back ground" questions for now.
We are working to improve the RT system (bring in more RT) and it is difficult to go back and for between the two types of activities (board management and R&D.)


Pascal

[pdp-brugge]

No problem.

Take all the time that you need and make the RT system as good as you can
This will be off greater advantage to the group!

PdP

[pdp-brugge]

It is just an idea...
One of the issues with viewing the RT graphs is the impact on the performance viewing it in a browser.
Would a solution not be to create a separate webpage for each model?
Now the 20DMF RT and the GDX RT are one page.
If on one (sunny?) day the 9 other RT models are joined for the different S&P sectors, that will mean 11 RT graphs.
Maybe a separate page for each RT model...
Just a thought...

PdP

[Pascal]

It is just an idea...
One of the issues with viewing the RT graphs is the impact on the performance viewing it in a browser.
Would a solution not be to create a separate webpage for each model?
Now the 20DMF RT and the GDX RT are one page.
If on one (sunny?) day the 9 other RT models are joined for the different S&P sectors, that will mean 11 RT graphs.
Maybe a separate page for each RT model...
Just a thought...

PdP

Sure!
Each ETF will have its own RT page under the S&P500 tab.
We will also split the 20DMF from the GDX RT.


Pascal