In my previous post, Market Timing with a Canary, Gold, Copper, LQD, IEF and much more, I tested several market timing methods. The signal was checked on the last day of the month. Now the question is what happens if we check on a different day? How different will the results be?
One commonality in my strategies is the inclusion of a market timing component. This could be a signal to go into cash or reduce position size or enter a ‘safe’ ETF. This applies to my swing trading strategies, my monthly rotation strategies and my Tactical Assert Allocation strategies. As a researcher, I am always on a looking to improve this part of my strategies.
There have been a handful of market timing methods I have been wanting to test and compare with my current 200-day moving average version. I collected enough of them to test all at once and to compare the results.
In my last post, Avoiding Trades Before Earnings, I mentioned that I used Quantopian to do the research. Several readers asked about my thoughts about Quantopian and how it compares to AmiBroker. Some asked if I had left AmiBroker for Quantopian. What follows are my impressions after using Quantopian for several months and how it compares to AmiBroker.
The big question is will I be switching from AmiBroker to Quantopian for my backtesting?
Over my last 16 years of research, one of the most asked questions is should you not take trades before an earnings release. I could never answer this question because I did not have the data. I can easily recall trades were a stock came out with poor earnings and crashed 25%. But without testing this, I would still take stocks into earnings. Because that is how the testing was done.
A few months ago, I discovered that Quantopian has data for the earnings dates for stocks. I had been looking for a good reason to try out Quantopian and this looked like a good project.
I was talking to my trading buddy about the annoying part of trend following strategies. They may get you out of the major sell off but then you miss part of the run up. Using a 200-day moving average on the SPY would have got you out in late 2018. This would have been within 10% from the top and you would not had the pain of the additional 10% drop in December. But one would not have gotten back in until late February, missing a good part of the run up.
There is a dual nature of trend following strategies. They generally reduce your drawdowns during the bad years at the expense of underperforming during the good years. This underperformance can be big and difficult to deal with. Now if one is in the conserve wealth (vs grow wealth) part of their life, then this may be okay, but still difficult to deal with.
What follows is a possible way to balance these issues.
A common question I get from readers is “does mean reversion still work?” The last time I wrote about this topic was in 2015, a long time ago, in the post “The Health of Stock Mean Reversion: Dead, Dying or Doing Just Fine” I did not realize it had been so long. Time to look at it again.
Date Range: 1/1/2001 to 12/31/2018
Entry:
Exit:
In my last post I discussed SPY/TLT rotation strategies. Today, I will be using the same ideas from the post but on a basket of bond ETFs.
For my retirement accounts, I like to trade ETF strategies that require little work. One strategy we have all seen is the SPY/TLT strategy. There are many flavors of this concept. Some pick the best one over the last N months. Then there are different ways of allocating a portion of the portfolio to each. I currently don’t trade any SPY/TLT strategy and wanted to see if there was something interesting here.
I have a Google Home in my bathroom that I play a morning routine while I shave, brush my teeth and get ready for the day. One step is to play The Indicator podcast from Planet Money. This morning they were talking about how “2018 was one of the most volatile years on record for the stock market.” Of course that caught my attention and I wanted to discover how they measured that. The volatility last year did not seem that bad given my trading since 90s. They mentioned the VIX and that had increased 157% from the previous year. But there was no other mention on how they came up with that statement. Well during my shower, I thought of all the “easy” ways they could have done it.
So how does 2018 volatility rank compared to all years since 1995?
As I have mentioned in several interviews, I am always looking for new strategies. One area that fascinates me is stock options. Because it is difficult to get good data and to do backtests, I believe that there are good edges here to be found. A few weeks ago, I found myself with lots of time and having read presentations on options, I went into a testing frenzy.
After lots of work, I found a strategy that greatly exceeded my expectations. It seemed to be the Holy Grail. I ran the strategy by my trading buddy, Steven, and he thought it was great too. We were so excited!
