This is a mobile optimized page that loads fast, if you want to load the real page, click this text.

Developing a mechanical system from scratch

Jump to new
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
Click to expand...
.

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.
 
tech/a said:
.

This is what I thought.

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

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?
Click to expand...

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.
Click to expand...

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.
 
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?
 
tech/a said:
Have a look at turning your system on and off using YOUR systems equity curve.
Click to expand...

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

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

Interesting stuff Sinner. Like to see a visual though.


CanOz
 
tech/a said:
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??
Click to expand...

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?
Click to expand...

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

Interesting stuff Sinner. Like to see a visual though.


CanOz
Click to expand...

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

Cheers,


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
 

Attachments

  • DAX ORB3 ATR.PNG
    43.9 KB · Views: 4
  • HSI ORB3 ATR.PNG
    55.8 KB · Views: 3
Here is the SPI, with the ATR.

CanOz
 

Attachments

  • SPI ORB3 ATR.PNG
    62.3 KB · Views: 4
Trembling Hand said:
Why?

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

:
Click to expand...

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
 
I wish they were all like this one!
 

Attachments

  • SPI ORB May 1st.PNG
    66.9 KB · Views: 14
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
 
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
 

Attachments

  • AAPL ORB.PNG
    61.6 KB · Views: 8
You must log in or register to reply here.

Similar threads

L
Technical Trading Software
Replies
0
Views
2K
Lyndon
L
November 2024 DDD
2 3
Replies
53
Views
5K
ducati916
Trading systems/methods guidance
Replies
14
Views
6K
rnr
R
W
Trading system template for Amibroker
Replies
0
Views
3K
whacky
W
Ozempic: Magic Pill or Devils Bargain?
Replies
10
Views
2K
sptrawler
Menu
Log in
Register
Cookies are required to use this site. You must accept them to continue using the site. Learn more...