Developing a mechanical system from scratch

[tech/a]

Tracking the momentum of a set of ETFs which tracks a set of anomalies is exactly the same as "turning your system on and off using YOUR systems equity curve" except across multiple systems

.

This is what I thought.

Can you give me an example of the ETF's you are traking.
I dont trade ETFs but am interested in this approach to test.
How do you know which ETF is tracking which anomaly?
Which you use as your switch/s and when to apply it/them.

A working example would be excellent.
Thanks.

 

[sinner]

.

This is what I thought.

Can you give me an example of the ETF's you are traking.

A simple example would be the growth and value ETFs for the Russell 2000. I don't track those two specifically, but they are a good example of anomaly tracking funds.

I dont trade ETFs but am interested in this approach to test.
How do you know which ETF is tracking which anomaly?

Because the ETFs have been created specifically to track that anomaly. Obviously not all anomalies (like very short term mean reversion) have an ETF, you need to track the equity curve for those yourself.

Which you use as your switch/s and when to apply it/them.

A working example would be excellent.
Thanks.

As per above (this is a very simple example):

Track the 6 month log returns for IWM, IWN and IWO, each month invest 100% of equity in the highest performing of the three.

 

[tech/a]

OK
Clear me up on this.
Your tracking these and you place 100% equity in the best performing each month.

If so then your trading the EFT??

If not how do you relate the chart to your own group of stocks in your portfolio??

How do you implement it/them as a filter?

 

[CanOz]

Have a look at turning your system on and off using YOUR systems equity curve.

That's what i was talking about in the post above.

CanOz

 

[CanOz]

OK
Clear me up on this.
Your tracking these and you place 100% equity in the best performing each month.

If so then your trading the EFT??

If not how do you relate the chart to your own group of stocks in your portfolio??

How do you implement it/them as a filter?

Yeah, seems like more of a filter than a switch...semantics i guess.

Interesting stuff Sinner. Like to see a visual though.


CanOz

 

[sinner]

OK
Clear me up on this.
Your tracking these and you place 100% equity in the best performing each month.

If so then your trading the EFT??

If there is an ETF which tracks the anomaly I'm interested in, then I will of course rotate into the ETF, if not then of course I will trade the stocks which make up the equity curve.

How do you implement it/them as a filter?

I'm really not sure you understand the concept tech.

The idea in the above example is that by trading the top N anomalies, you are also not trading the remaining anomalies, i.e. they are filtered out of your overall equity curve.

So at the end of a given month, if 'growth' is outperforming 'value' and 'the benchmark' on a 6 month basis, then by investing 100% in growth I am filtering out the value and market cap anomalies from my equity curve.

 

[Gringotts Bank]

tech, it's like rotational trading. A rotational trading system won't switch off altogether, but built into its mechanism is a constant switching from weaker to stronger instruments.

 

[sinner]

Yeah, seems like more of a filter than a switch...semantics i guess.

Interesting stuff Sinner. Like to see a visual though.


CanOz

Ok, you get the visual once, but stating in advance I feel it's only because you are too lazy to visualise it yourself! This is not a hard concept to understand, especially considering the links I provided.

To clarify again, this is only an example!!!

Let's say I have a portfolio for allocating to anomalies, I divide the capital equally into the number of anomalies I wish to track. In this case, let's say I am interested in the anomalies:

* Equity: momentum
* Equity: value
* Equity: dividend yield
* Equity: large vs small

So each gets a 25% allocation of total portfolio size. Now I define a statistical rule which stops me from trading a particular anomaly and move that quarter of the account to cash or short term guaranteed notes (or invest in the benchmark itself).

Let's say I am using:
* 65 day mean (avg) of returns
* 1 std dev of returns
* 2 std dev of returns

I will invest 25% of total portfolio into an anomaly if the returns of that anomaly exceed the 65 day mean of returns by 1std dev of returns, and exit the position if the returns of that anomaly decrease below the 65 day mean of returns by 2 std dev of returns.






Now in this example, I used a slightly more complex method than trading the anomaly with highest 6 month ROC but functionally the results are very similar, the idea is to show you can use most momentum tracking methods without problem.

Hope it is starting to make sense...like I said, all my systems have such an (implicit or explicit) on/off switch which get them in/out based on the momentum of their returns, a metric that usually changes when the market regime is changing.

EDIT: err that last arrow on the right in the IWN chart should be green...

 

[CanOz]

Sinner, thanks for providing the example. I see what your saying. I think I've seem something similar using the VIX once.

Cheers,


CanOz

 

[CanOz]

Well we've added an ATR stop to the DAX system. While its made an improvement to the equity curve and to my OF on the DAX, the results for the HSI and the SPI have not been as spectacular. Still trying to find a decent combination on the SPI.

Cheers,


CanOz

 

[CanOz]

Here is the SPI, with the ATR.

CanOz

 

[Trembling Hand]

Still trying to find a decent combination on the SPI.

Why?

Might as well try and find a decent way to make make money as a blacksmith?

:

 

[tech/a]

Why?

Might as well try and find a decent way to make make money as a blacksmith?

:

Howard Hughes' Catalina.
Just couldnt get it to fly.

 

[CanOz]

Why?

Might as well try and find a decent way to make make money as a blacksmith?

:

Really what i meant here is that i was trying to find the last variable that i used on the raw version. I didn't save my test reports on the raw version as i had the ATR stop coming along....i know, that's not good.

Not stuck on trading the SPI, but it does help my confidence if my system work ok on it.

Going to try it on Soy Beans, Corn and Wheat today, if i can get enough data.

CanOz

 

[CanOz]

I wish they were all like this one!

 

[Trembling Hand]

I wish they were all like this one!

How funny is that. I just trash it for its lack of movement and it pulls one right outa the bag.

 

[CanOz]

TH, you ever trade the Eurodollar interest rate futures? There is a mini contract on Globex(EEDK2). It is supposed to be the most liquid fut in the world.

Just wondering if you had traded it before, and if i had the right instrument?

CanOz

 

[Trembling Hand]

TH, you ever trade the Eurodollar interest rate futures? There is a mini contract on Globex(EEDK2). It is supposed to be the most liquid fut in the world.

Just wondering if you had traded it before, and if i had the right instrument?

CanOz

Think you mean GE,
http://www.cmegroup.com/trading/interest-rates/files/IR148_Eurodollar_Futures_Fact_Card.pdf

And nope never touched it. HSI for me.

 

[CanOz]

This just keeps getting more interesting all the time, here is the DAX system on AAPL intra-day.

100 share lot. It's not pretty but it works.

CanOz

 

[captain black]

I wish they were all like this one!

Is that an open range breakout system on the SPI CanOZ?

No need to disclose full system, just looks like an ORB to me.