guymar
113 posts
msg #92615
- Ignore guymar
modified |
5/13/2010 4:11:12 PM
People, please be prudent, the intra-period drawdowns are big. I am convinced no-one has the stomach to see these trades through when trading with real money ....
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Kevin_in_GA
4,599 posts
msg #92616
- Ignore Kevin_in_GA |
5/13/2010 4:19:29 PM
Not really true (assuming you are posting this comment in the right thread?).
As I indicated in an earlier post in this thread, I have one of my two 401k accounts entirely in smallcaps right now based on this filter. Show me an easier investment management strategy that delivers similar returns over the past 7 years and I'll consider it. Otherwise, I'll stick with this for the time being.
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dmstcp
2 posts
msg #92617
- Ignore dmstcp |
5/13/2010 4:34:00 PM
Hey Kevin,
I have been following your posts for a few months now, and I'm ready to try a filter in this thread. In reading your post, I'm looking for the bottom line, I have 2 questions. What filter are you currently using, and how often do you "rinse, wash, repeat." Thanks for your reply, from a SF rookie.
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Kevin_in_GA
4,599 posts
msg #92737
- Ignore Kevin_in_GA
modified |
5/14/2010 4:29:44 PM
Well, I just finished backtesting a number of different combinations of relative strength and rebalancing time frames from 6/30/2003 until 4/30/2010 (82 months, or 27 quarters). Here's what I got:
Using 100% weighting on the 21 day relative strength:
Monthly rebalancing: 129% return
Quarterly rebalancing: 180% return
Using a 50/50 weighting between the 21 day and 63 day relative strengths:
Monthly rebalancing: 264% return
Quarterly rebalancing: 337% return
Using 100% weighting on the 63 day relative strength:
Monthly rebalancing: 275% return
Quarterly rebalancing: 368% return
For me, this is a fairly definitive test, except that there are only 27 data points for the quarterly rebalancing (I wish there could be more). Clear indication that a longer RS setting and a less frequent rebalancing work best.
By the way, under every one of these scenarios (all of which crushed buy-and-hold on the S&P) IWM is the current ETF of choice.
Kevin
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duke56468
683 posts
msg #92759
- Ignore duke56468 |
5/14/2010 11:06:10 PM
Kevin..Thanks for sharing your filter and your talent. Is the quarterly rebalance Dec. 31, Mar. 31 etc. or is it any three month period? It feels a little uncomfortable having no stops for 3 months and no diversification, but after reading this thread several times I think I'll give it a try.
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Kevin_in_GA
4,599 posts
msg #92826
- Ignore Kevin_in_GA |
5/16/2010 7:21:20 PM
Here's an update on my efforts to further backtest this filter.
The ETFs used here track their underlying indices fairly accurately, but only go back as far as mid 2003.
Instead, I used the monthly data for the indices themselves, which allow for extending the backtesting time frame to July of 1996 (an extra 7 years, during which we had a phenomenal run up in the S&P, then the Asian currency meltdown and the dotcom bubble bursting). Definitely a highly volatile period that would challenge any decent investment strategy.
Since SHY did not exist back in 1996, I simply put the investment in cash instead (I gave it 0.1% gain per month, which is an underestimation for money market accounts during that time, but that's OK). I also looked at the quarterly rebalancing by taking the average of the rolling 3 quarter data, rather than just using the traditional business quarter definitions - this then allows for the same number of data points as the monthly, just averaged into a composite quarterly rebalancing performance (probably more accurate).
Now, using a 100% weighting on the 3 month relative strength, and looking back over 165 trades since 7/1996 the data is as follows:
Monthly:
Winning Trades: 119
Losing Trades: 46
Win %: 72.2%
Return since 7/1996: 376%
SPX return since 7/1996: 85.4%
Quarterly:
Jan, April, July, Oct: 268% return
Feb, May, August, Nov: 214% return
Mar, June, Sep, Dec: 433% return
Average return since 7/1996: 305%
SPX return since 7/1996: 85.4%
This longer backtest shows that monthly rebalancing is the best approach (opposite of what I posted earlier ...). Personally I am most comfortable trading this filter on a monthly basis, so this is not bad news as far as I am concerned.
There is not as large a difference as one might have expected, but it was essentially impossible to beat the SPY buy-and-hold during the late 1990's before the 2001 crash. Up to 3/2001 the buy and hold approach had returned 134% versus only 70% for this approach.
Using the indices results in different overall returns, as would using VWO versus EEM, or IEF versus SHY, etc.
Key takeaway from this for me is that regardless of which specific ETF, rebalancing timeframe, or backtest length, this approach consistently outperforms the market, usually by a large multiplier. Most of the real gains have come since 2005, but that may simply reflect changes in the overall market - frankly I am happy that it is performing better now rather than the reverse.
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hmsb4494
81 posts
msg #92832
- Ignore hmsb4494 |
5/16/2010 9:05:36 PM
I am playing around with the idea of trying to trade which ever of the ETF's is on top from the monthly rebalancing, using Kevin's pure price based filter. any comments or ideas???
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hmsb4494
81 posts
msg #92833
- Ignore hmsb4494 |
5/16/2010 9:14:38 PM
Now, using a 100% weighting on the 3 month relative strength, and looking back over 165 trades since 7/1996 the data is as follows:
Kevin---why the 100% weighting on the 3 month relative strength---etfreplay backtests show the the 50% 3 month and 50% 20 day outperforms the 100% 3 month
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Kevin_in_GA
4,599 posts
msg #92843
- Ignore Kevin_in_GA |
5/17/2010 7:04:15 AM
Now, using a 100% weighting on the 3 month relative strength, and looking back over 165 trades since 7/1996 the data is as follows:
Kevin---why the 100% weighting on the 3 month relative strength---etfreplay backtests show the the 50% 3 month and 50% 20 day outperforms the 100% 3 month
******************
As I had posted earlier in this thread, their selection is based on rank, not absolute score, with any ties going to the one with the better longer term relative strength. I also posted a manual backtesting of these ETFs using 100% 21 day, 100% 63 day, and 50/50 split. The 100% 63 day (3 month) scored the best at both the monthly and quarterly rebalancing.
Either way, the prinicple of using relative strength to manage a simple portfolio like this results in stellar performance when compared to the overall market over the same time period.
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duke56468
683 posts
msg #92849
- Ignore duke56468 |
5/17/2010 11:22:04 AM
Kevin...so on the last trading day of the month, run the filter with symlist(spy,eem,iwm,shy)and set{alpha,relative strength(SPY,63)},
or is it still... set{alpha, relative strength(SPY,20) + relative strength(SPY,63)}
I'm confused.......NO WAIT..maybe I'm not........OK ya I am.
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