This entry was posted on Monday, January 28th, 2008 at 9:30 pm and is filed under Education, market commentary, system trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
On this blog and my old I have tried to show you that in the short term swing timeframe buying dips can over the long term exhibit an edge over buy and hold of the major indices. I now want to show you the other side of that coin. My dip buying system for individual equities stays trading even during bear markets. This is because in backtesting just when you think you have a mechanical time to turn it off, it ends up severely impeding long term performance. Systems are mechanical and as it stands is the best incarnation. Yet it weak markets it will have a drawdown much like any mutual fund because it is just a fully invested portfolio that mimics the markets with a small edge. But as I tried to explain in my last post you must learn to properly position size risk with each system.
The opposite of dip buying is trend following. In my testing trend following on daily bars does seem to have a slight edge and that edge tends to play out in weaker markets when it hides in cash. I wanted to show the readers the types of ETF’s this system has triggered a buy in and when those buys were triggered. With all the new ETF’s I obviously would not take all signals but build a logical trend portfolio. This graphic shows the holding that are presently triggered by John’s system called Fuzzy MA. Wonderful system. It has you typical stats of any trend type system. Large winners and smaller losers with winners being about 45% of trades. Anyway look at the progression of the graphic:
Look at the bars held column. Notice the progression? Bonds in July. Metals in September. Euro kicks in the same time as dollar falls. Then all the Ultra Short ETF’s. Way way back I had given away how I structure my portfolio on my old blog. I still follows the same plan and I even incorporate concepts inside concepts to diversify systems even further than that simple formula.
So basically the swing system stays turned on at all times and the trend equity related turned off back in October and November protecting precious capital all the while Bonds, Metals, and anti Dollar plays turned on. My IBD breakout stuff again kept precious capital in cash following basic rules I have developed based mainly upon the works of Weinstein and O’neil. The best part is that as the market begins to fall the VIX begins to rise and ultimately the daily bars start to get longer. As an intraday E-mini trader it is a dream come true to have added volatility and range, allowing me to capture some decent intraday ranges as much of the overall portfolio is in cash.
It all goes back to my original post about multiple systems over multiple timeframes each with their own statistical edge proved by intensive backtesting. It is important to develop systems that counter each other in a positive way. Having systems that all do the same thing and that have equity curves that move in unison is really only one system. My advice? Spread risk across multiple uncorrelated systems. It’s really not hard to develop systems that do this. Best of luck and I am here to help.
Have a Great Night!
Dave Johnson