duke56468
683 posts
msg #96818
- Ignore duke56468 |
10/8/2010 5:03:42 PM
Kevin I manually back-tested this filter using the offset to Friday back to Sept 2009 with EEM,AGG,IWM, it came out losing money. Am I using it wrong?
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Kevin_in_GA
4,599 posts
msg #96866
- Ignore Kevin_in_GA |
10/12/2010 4:29:14 PM
Duke:
Not sure how you are seeing losses on this filter. Make sure that you are investing in the highest TSI asset class based on each Friday's close. As an example, you would have been in AGG from May 7th (at 104.41) until Sept 10th (exiting at 107.50, up 2.96%) and moving into VWO at the open on the following Monday (at 43.69). It is currently at 46.76, up 7%.
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duke56468
683 posts
msg #96868
- Ignore duke56468 |
10/12/2010 5:04:55 PM
Kevin...I was using EEM,AGG,IWM, and yes I got +2.96% May 7- Sep 3,and +3.64% IWM Feb 19-APR 30, but from then on they are all losses back to Sept 25 2009. The most notable was EEM -5.77% between Oct 9 2009 and Oct 29 2009. I was running into the same whipsaw problems with VWO and GLD so tried the basic EEM,IWM,AGG. I didn't go back farther than Sept 09.
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Kevin_in_GA
4,599 posts
msg #96872
- Ignore Kevin_in_GA |
10/12/2010 7:43:10 PM
Duke:
This re-posting of an earlier comment I made is what you need to consider:
I finally got around to optimizing The TSI settings.
Using StrataSearch, I was able to have it calculate the weekly TSI data for SPY, IWM, AGG, and EEM going back to 2004. I them imported these into Excel and calculated the equity curves for each of 16 settings - weekly TSI(X,Y,1) where X = 3,5,7,9 and Y = 3,5,7,9). Luckily, the symmetric nature of double EMAs meant that I only had to calculate 10 different combinations (the triangular matrix for you math nerds). It did it for 2004 -2010 as well as 2007-2010. It seemed that most of the gains were actually made during the more volatile past 4 years.
Starting from 1/1/2007 until 8/27/2010, you got the following data:
weekly TSI(3,3,1) = 52.6% return since 2/2/2004, 45.6% return since 1/3/2007. 95 trades made since 2007.
weekly TSI(3,5,1) = 48.6% return since 2/2/2004, 50.8% return since 1/3/2007. 90 trades made since 2007.
weekly TSI(3,7,1) = 53.9% return since 2/2/2004, 50.9% return since 1/3/2007. 79 trades made since 2007.
weekly TSI(3,9,1) = 62.7% return since 2/2/2004, 45.7% return since 1/3/2007. 60 trades made since 2007.
weekly TSI(5,5,1) = 67.0% return since 2/2/2004, 59.4% return since 1/3/2007. 70 trades made since 2007.
weekly TSI(5,7,1) = 57.0% return since 2/2/2004, 35.2% return since 1/3/2007. 52 trades made since 2007.
weekly TSI(5,9,1) = 53.8% return since 2/2/2004, 42.3% return since 1/3/2007. 47 trades made since 2007.
weekly TSI(7,7,1) = 50.9% return since 2/2/2004, 42.3% return since 1/3/2007. 47 trades made since 2007.
weekly TSI(7,9,1) = 40.8% return since 2/2/2004, 30.5% return since 1/3/2007. 44 trades made since 2007.
weekly TSI(9,9,1) = 28.3% return since 2/2/2004, 25.8% return since 1/3/2007. 40 trades made since 2007.
Clearly the Weekly TSI(5,5,1) settings are the best within this set. Looking at the data from 2007, about 10% of the trades suggested were within 2 weeks of the previous trade, so that might be an issue of you are limited to only two reallocations per month.
For comparison:
SPY Buy and Hold: -19% return since 1/3/2007.
Diversified Portfolio (equal weights in all four ETFs): -0.1% return since 1/3/2007. Obviously there is value in having a diversified portfolio, but using strategic asset allocation based on buying into strength (either using RS or the weekly TSI) yields a much higher return at lower overall volatility.
Just looking back to September, you still are making a small profit at a much lower volatility. There will be times where you do not beat the SPY, and times (although limited) where you might lose money - that's all part of investing.
This system is designed to be easy for many casual investors or those managing thir 401k accounts to use. Happy to answer your questions here, but it is very self-explanatory.
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duke56468
683 posts
msg #96874
- Ignore duke56468 |
10/12/2010 8:40:45 PM
Thanks Kevin...
Maybe I was just overly concerned about the seven negative round trips between Sept 25 09 and Feb 12 10. S-P 500 made a small gain (3%) during that time. The problem on a small account becomes transaction costs. Do you feel IWM,EEM,AGG are a viable combination with this filter?
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Kevin_in_GA
4,599 posts
msg #96875
- Ignore Kevin_in_GA |
10/12/2010 9:21:21 PM
It depends - I use these as proxies for mutual funds into which my 401k can be invested. If I were using this as a separate investment tool, I personally would look for multiple uncorrelated or weakly correlated assets (this is why I developed the most recent iteration of his filter that automatically generates a 100 day correlation matrix).
I look at the following:
Core set - IWM, SPY AGG, VWO, VNQ, GLD
Extended set - KBE, SMH, LQD, XHB
Beyond 10 classes it gets to the point where you are probably trading too many times - with 4 to 6 basic asset classes, your trading frequency is less and you still are riding the relative strength wave.
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Kevin_in_GA
4,599 posts
msg #96887
- Ignore Kevin_in_GA |
10/13/2010 8:04:25 AM
Useful chart here - this shows the correlations between 31 different asset classes over the past year. Note how highly correlated the major markets have become. The most recent filter builds a smaller version of this at the 100 day correlation time frame.
Asset Class Correlation Matrix
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blackthought
25 posts
msg #96914
- Ignore blackthought |
10/14/2010 2:31:11 AM
hey kevin, any new filters in the works? love your work.
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Kevin_in_GA
4,599 posts
msg #97094
- Ignore Kevin_in_GA |
10/19/2010 2:45:33 PM
This afternoon, IWM passed VWO as the top ranked ETF using the weekly TSI(5,5,9) indicator. These two have moved in tandem recently (as have all of the asset classes), so today it was only the fact that VWO fell harder than IWM that triggered this signal.
I would always wait for the end of the week, since the system was developed and optimized against the weekly close for each asset class. Just a heads up that the signal change has occurred.
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Kevin_in_GA
4,599 posts
msg #97095
- Ignore Kevin_in_GA
modified |
10/19/2010 4:47:45 PM
VWO has now moved below both SPY and the top scorer IWM. Its weekly TSI histogram(5,5,9) has also crossed below 0.
I'l be out of VWO tomorrow and move into IWM (since I can't trade GLD in my 401k account). I think the Histogram cross is a good signal for exit, as it can get you out with a little more profit.
This is of course running exactly counter to what I just posted about waiting until the end of the week!
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