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Author Topic: Introduction to our Market Timing  (Read 135796 times)
Super Stock Picker
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« on: October 21, 2008, 04:19:11 PM »

Hello,

Our portfolios' historical performances and the recent stock market crash clearly indicate that we can improve our performances if we can reduce the volatility of our strategies. Also, smaller drawdowns are important to help people stick to our strategies without unnecessary stress.

Our idea is then to introduce a Market Timing indicator that generates UP and DOWN signals based on the TSX trends. Obviously, when the trend is UP, it indicates that it is a good time to be invested and when the trend is DOWN, it is the time to stay on the side lines.

Our indicator is based on the TSX because this is the best available index that tracks our portfolios' broad market. Our indicator is then generated by using a few moving averages.

So, by definition, this is a trailing indicator. That means that we are not trying to guess the future, but we simply look at the recent past to extract the current trend. It is not perfect, it does not detect the exact tops and bottoms of the market, but it does a great job of extracting the most important trends. You'll see how it helps our volatile strategies to stay on the right side.

We have now made enough progress in our research to share those preliminary results with you. You comments and feedback will help us to make it as useful as possible for you.

In the next post, I will show you the results of this indicator on the TSX from 04 to Oct 08.
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Super Stock Picker
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« Reply #1 on: October 21, 2008, 05:09:38 PM »

The attached files (picture and Excel file) gives you the results of our Market Timing indicator from 04 to 08.

The indicator is updated every day. If on a given day, the signal is UP then the next day performance is taken into account, and if the signal is DOWN, then there is no change registered on the next day.
You can see these results in the column "UP Only".

The opposite is also done in the column "DOWN Only" in order to track the performance of the TSX when the indicator is DOWN, but as our main objective is to isolate the main UP trends (the same direction as the long term natural bias of the market), the "DOWN Only" performances are not so great, expect with the help of the last stock market crash.

If you would to consider investing following only our indicator, a possible way would be to use a 2 times bullish ETF and follow the UP Only signals. You can see such results in the "2x UP Only" column. Volatility is back of course, due to the 2x leverage, but this strategy brings a decent long term performance, when the broad market is almost back where it has started.

Now, a few important points about our indicator:
- It is updated daily. This is not in sync with our portfolios updates that can be weekly or monthly. That would then generate more commission expenses, but this is the price to pay to get that extra protection.
- A shift of one day makes a difference. We publish the results of our timing using the close price of the day the signal is generated and the next day open price. In one case, you buy at the close if a new UP signal is generated TODAY. In the other case, you buy the next day open price when a new UP signal is generated. While the second option makes it much easier, it also brings the performances down. You'll see with the results of this indicator on our portfolios that it would have a huge impact. We propose to solve this by publishing a LEADING indicator BEFORE THE CLOSE of the market. It would be published via a feed and on the website. So, you will be able to react fast if a new signal is generated. Everyday, we would also record the CONFIRMED indicator that should be the same as the LEADING indicator except in a few little number of occurrences (huge move in the last minutes of trading or when the trend is very weak)

PS: Do not forget that you need to be logged on the forum to get access to the attached documents.

* TSX timing.xls (400 KB - downloaded 1405 times.)

* TSX Timing.gif (32.39 KB, 1124x522 - viewed 2846 times.)
« Last Edit: October 22, 2008, 02:21:29 PM by Super Stock Picker » Logged
Super Stock Picker
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« Reply #2 on: October 21, 2008, 05:25:12 PM »

Here is when starts the interesting part. You'll see here how the addition of our Market Timing indicator changes the behavior of our portfolios.

We'll show you an example of each type of portfolios, to see that the indicator helps all kind of portfolios, except the Low PEG Ratio.

In any case, we'll keep on publishing both types of portfolios, only raw data or with the addition of the Market Indicator.

Back to the Ultimate Price Momentum v4 portfolio. Let's see what's changed with the addition of the Market Timing:
- Lower Max drawdown: Now - 24.35%, occurred in end 07/beginning 08.
- Reduced current drawdown: - 7.38% during the current stock market crash.
- Increased All Time annualized return: + 110.66%
- Improved 2008 performance: + 42.64%

See attached picture and Excel file to get more details.

* UPM v4 with SSP timing.xls (268 KB - downloaded 1322 times.)

* UPM v4 with timing.gif (24.94 KB, 1155x618 - viewed 2476 times.)
« Last Edit: October 22, 2008, 02:20:33 PM by Super Stock Picker » Logged
denhams
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« Reply #3 on: October 21, 2008, 09:48:12 PM »

Wow, this looks very intriguing! Almost too good to be true?
Where on the website will the indicator be posted / updated daily?
Will email subscribers be offered the updates via email?
Thank you kindly for all your continued efforts...
Strict SSP UPMV4 follower (losses and all),
Scott.
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Super Stock Picker
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« Reply #4 on: October 21, 2008, 11:06:30 PM »

Wow, this looks very intriguing! Almost too good to be true?
Where on the website will the indicator be posted / updated daily?
Will email subscribers be offered the updates via email?
Thank you kindly for all your continued efforts...
Strict SSP UPMV4 follower (losses and all),
Scott.
Hello Scott,

This indicator is really nothing fancy, KISS always works best.

Regarding the updates, the leading indicator will be available on the website everyday at the time it will be calculated and distributed through a RSS feed.
The confirmed indicator will go the same way plus it will be shown in the daily emails with the regular orders.
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garilou
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« Reply #5 on: October 22, 2008, 03:57:49 AM »


Hi, SSP

It looks great!
I guess more comments will come when we have time to study those changes more thoroughly.

I'm anxious to see other people's comment and glad to see that denhams is a "Strict SSP UPMV4 follower "
I can understand that he is happy!


Stupid question: what does "KISS" mean?

Louise
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Super Stock Picker
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« Reply #6 on: October 22, 2008, 12:06:09 PM »

Hello Louise,

KISS means Keep It Stupid Simple.
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Super Stock Picker
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« Reply #7 on: October 22, 2008, 02:48:24 PM »

The three next posts give you examples of how our Market Timing indicator affects the performances of our portfolio.

First, we go with the Price Momentum Weekly portfolio. Its figures look like this:
- Max drawdown: - 27.29%
- Current drawdown: - 3.50%
- All Time annualized return: + 77.03%
- 2008 performance: + 20.53%

Graph and Excel files attached as well.

* PM weekly with timing.xls (272.5 KB - downloaded 1175 times.)

* PM weekly with timing.gif (29.65 KB, 1219x560 - viewed 2475 times.)
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Super Stock Picker
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« Reply #8 on: October 22, 2008, 02:54:21 PM »

Now, let's look at what the results are for the Earnings Estimate Upgrades weekly portfolio:
- Max drawdown: - 19.67%
- Current drawdown: - 11.84%
- All Time annualized return: + 19.67%
- 2008 performance: -1.96%

* Earnings Estimate weekly with timing.xls (257.5 KB - downloaded 1150 times.)

* Earnings Estimate weekly with timing.gif (33.74 KB, 1278x595 - viewed 2436 times.)
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Super Stock Picker
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« Reply #9 on: October 22, 2008, 02:56:27 PM »

To finish with these reports, here are the figures for the Low PEG Ratio portfolio:
- Max drawdown: - 32.77%
- Current drawdown: - 32.77%
- All Time annualized return: + 25.48%
- 2008 performance: -17.90%

* Low PEG with timing.xls (235.5 KB - downloaded 1275 times.)

* Low PEG with timing.gif (30.89 KB, 1217x563 - viewed 2519 times.)
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bryanmcn
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« Reply #10 on: October 22, 2008, 05:22:13 PM »

Market timing

So, if there is a down signal, does that mean that we should sell all of our positions?
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Super Stock Picker
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« Reply #11 on: October 22, 2008, 08:27:30 PM »

So, if there is a down signal, does that mean that we should sell all of our positions?
Yes, that's what is done to get to the results shown in this thread.

When the trend is down, we are out of the market, and when the trend is up, we are 100% invested as usual.
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garilou
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« Reply #12 on: October 23, 2008, 03:34:20 AM »

Hi SSP,

As you can imagine, I have downloaded most of your .xls files. 
Even if the "recipe" for the UP / DOWN signals adds to your secret recipes, I'm still studying your other calculations.
But this is just for my own fun (I like numbers and calculations as you start to know me).
It is hard to follow, because your calculations since 2004 seem to have "adapted" the TSX in one way or another.
But I understand this was needed to back test and produce the sheets and figures of how (retrospect) the portfolio would have behaved if this UP / DOWN signalling system had been implanted.

But just a little question: the Timing.xls shows in its first columns, in the same line as the date:
DATE   TSX Close   TSX Open
Is this open the Open of the date written or the next morning Open? If it's from the same date, why would you make the second column the close and the third one the open?


OK lets get practical.

You have already answered one of my questions through Bryan's  question: when the DOWN signal appears, we quickly move out with all the portfolio(s) content(s), ASAP.

But then you write:

Quote from: SSP
When the trend is down, we are out of the market, and when the trend is up, we are 100% invested as usual.


If we got out of the market for some times, and then comes an UP signal, with which stocks do we get back in?

Assuming that the DOWN signal has been lit up for many days in a row, will there be new BUY orders when it "turns green?"
Or do we get back in with those stocks that were in the portfolio before we all jumped out?

Louise

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bryanmcn
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« Reply #13 on: October 23, 2008, 05:54:22 AM »

I think its safe to assume that we get back into the same positions when an up signal is given.

What would the chart look like if we bought a reverse ETF like HXD.to when we get a down signal and sold when an up signal is given?

When does this start?
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Super Stock Picker
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« Reply #14 on: October 23, 2008, 10:33:20 AM »


But just a little question: the Timing.xls shows in its first columns, in the same line as the date:
DATE   TSX Close   TSX Open
Is this open the Open of the date written or the next morning Open? If it's from the same date, why would you make the second column the close and the third one the open?

...

If we got out of the market for some times, and then comes an UP signal, with which stocks do we get back in?

Assuming that the DOWN signal has been lit up for many days in a row, will there be new BUY orders when it "turns green?"
Or do we get back in with those stocks that were in the portfolio before we all jumped out?
Hello Louise,

Regarding your first question, there is no special meaning in the orders of the Close and Open columns. They are both for the day given in the Date column.

Now, about the IN and OUT movements due to the signals:
You have to see our timing as an add-on to our regular portfolios.
When the signal is UP you duplicate the portfolio content, and when the signal is DOWN, you are all cash. When the signal is UP again, you buy whatever stocks are now in the portfolio. They could be the same or new ones depending on the length of the DOWN signal and the activity in the portfolio.

The orders will keep on being generated for the portfolios you currently know even when the timing is DOWN. This way, we will keep on tracking the performances of the portfolios without timing.

At the same time, we will record the performances of the portfolios with the addition of the timing to give you a way to compare both, in terms of performances and volatility.

Day to day, it will translate in receiving the exact same orders as what you get now plus a timing indicator for those who wish to follow it.
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