Dump it Here

[Skate]

Ann,
Great analysis. Not only are traders watching the 200MA, but investors.

Using a "Moving Average" to trade
I was reading the notes of an institutional trader remarking that average daily volume is the single biggest factor in scanning for signals. The next is daily volume. Their main objective is to move large amounts in & out of the markets without shifting the price.

This got me thinking, how do they actually do it?
They scan using a simple formula (the moving average over the last 5 periods) multiply by (the moving average of the volume of the last 21-periods) then filter the results by momentum.

Nah, it couldn't be that simple
Well, you live & learn. Fancy the big guys moving large sums with something so crude. This got me thinking, would it be effective to trade such a beast. Two lines of simple code & I'm up & running. There was no mention that they used other filters or parameters so to give the idea a fighting chance I've added a few filters of my own.

365 day backtest
Not too shabby of a trading strategy on face value.




365 Day Equity Curve
So far so good







3 year backtest
Turn over the belly of the beast & it reveals a dark side.




3 Year Equity Curve
I'll give this strategy the flick as it would require additional work. The basic premise couldn't handle COVID & there were a few months that had larger drawdowns than I could tolerate.




Summary
In my opinion, this simple idea might work for the institutional trader but it's not for me.

Skate.

 

[Ann]

Their main objective is to move large amounts in & out of the markets without shifting the price.

Generally, when I have hunted down a big sell from a fundie with very little price movement, it always appears to be a pre-arranged deal. You can see one or two funds moving in for the buy and over a few weeks the buyers slowly sell the stock back into the market and nick off. Not saying this always happens but it would be the simplest and least disruptive action from the seller on the stock. The only visible footprint is a huge volume spike on the day that sets off the punters for a bit, thinking someone big is buying in.

 

[ducati916]

1. I'd agree that interest rates didn't cause the 2000, 2008 or 2020 bear markets (sorry - I've never liked the word 'crash'). However, I'd also say it is possible that interest rates could indirectly cause a bear market.

2. We've lived through a time of seemingly ever reducing rates (but I for one can remember having a home loan at 13%!) so having ridden the elevator to the basement there is only one way for rates to go. Rising rates dampen consumer confidence and impact company profits (which filters through to the share price).

3. Central banks have always been able to influence rates by reducing the cash rate, but that won't work any more and I'm not sure they can stop rates from rising, pushing up inflation and scaring the beejeezus out of investors.

4. Rising interest rates also result in investors moving cash from equities to other investments.

5. Australia is one of the most personally indebted nations in the world where many have borrowed to the hilt. When rates were say 5% and moved up to say 6% it would see a 20% increase in interest repayment (which is pretty massive) but with loans of say 2% rising by the same 1% means a 50% increase in interest payments and a pretty massive flow on to inflation and mortgage distress.

6. That said, I think we'd need a confluence of negative events to see a bear market and interest rates (which go hand in hand with inflation) might be just one of the contributory factors. Unless something major happens - like China having a brain snap and invading Taiwan or Russia invading Ukraine, I'm still favouring a correction rather than a bear market.

If you actually read what you have written, you'll see that you actually agreed with the data.

jog on
duc

 

[ducati916]

Nope--not that simplistic. You omitted the fact that there was also a coinciding broad-based fall in the value of the underlying assets which made the prospect of refinancing very difficult. That coupled with the fact that people could pretty much just walk away from their liabilities resulted in the large defaults that triggered everything else.

Why did the assets fall?

Because when yields rise, prices (market values) fall.

Due to the margin involved in purchasing bonds (Hedge Funds pay 5%, ie.95% margin) a very small contraction = large move in equity. Banks have even higher margin. They were not 'supposed' to eat their own cooking and hold inventory, but they did, hence big problems.

The root cause: rising interest rates.

jog on
duc

 

[ducati916]

There was so much more to it than just these reasons. The whole bond package was a ruse and the sad thing is it still goes on today.

If anyone is interested in reading a wonderful book that offers the best and clearest explanation of exactly what happened leading up to 2007/8 I can highly recommend https://www.amazon.com.au/Colossal-Failure-Common-Sense-Collapse/dp/0307588343

LEH was late in the crisis. LEH simply informed the market (incorrectly) that there were no bailouts coming. Bear Stearns had already failed and financial institutions across the board were scrambling.

jog on
duc

 

[MovingAverage]

Why did the assets fall?

Because when yields rise, prices (market values) fall.

Due to the margin involved in purchasing bonds (Hedge Funds pay 5%, ie.95% margin) a very small contraction = large move in equity. Banks have even higher margin. They were not 'supposed' to eat their own cooking and hold inventory, but they did, hence big problems.

The root cause: rising interest rates.

jog on
duc

Because they were over cooked—it was a bubble. There was some extremely dodgy valuation practices going on back then.

root cause: over valued underlying flakey mortgage backed assets

 

[ducati916]

Because they were over cooked—it was a bubble. There was some extremely dodgy valuation practices going on back then.

root cause: over valued underlying flakey mortgage backed assets

And 'mortgages' are valued on interest rates.

jog on
duc

 

[MovingAverage]

And 'mortgages' are valued on interest rates.

jog on
duc

Mortgages are valued on interest rates….hmmm. Isn’t it the mortgaged asset that determines the value not interest rates? You’re also overlooking that value also factors in risk—those US sub prime mortgage back assets hid all of that risk

 

[eskys]

And 'mortgages' are valued on interest rates.

jog on
duc

I was thinking interest cover can also affect interest rate borrowing? Ducati is deep....interesting thread to learn....too much water causes flooding, too much QE causes inflation....lower interest rates to curb inflation....withdrawl of tapering will cause rise in interest rates (that's what I understand from these discussions) but on the whole I don't think rise in interest rates cause crashes, in my opinion, it's the fear of rising interest rates that causes volatililty.........but please don't donk me on the head if I've got it wrong

 

[Rabbithop]

This link is very interesting n informative for others who wants to learn. Thank you all for taking the time to put in your valuable add on info.

 

[ducati916]

1. Mortgages are valued on interest rates….hmmm. Isn’t it the mortgaged asset that determines the value not interest rates?

2. You’re also overlooking that value also factors in risk—those US sub prime mortgage back assets hid all of that risk

1. Value is a calculation based on price for cash-flow from an asset, which includes capital appreciation. Value is a rather nebulous concept.

To calculate value, an input price, which is the cost of capital required to purchase that asset needs to be applied. The cost of capital is the interest rate.

2. And when that risk reprices (rising yields) asset prices also revalue (fall) which can provide a very different value.

jog on
duc

 

[ducati916]

1. I was thinking interest cover can also affect interest rate borrowing?

2. Ducati is deep....interesting thread to learn....too much water causes flooding, too much QE causes inflation....HIGHER interest rates to curb inflation....withdrawl of tapering will cause rise in interest rates (that's what I understand from these discussions) but on the whole I don't think rise in interest rates cause crashes,

3. in my opinion, it's the fear of rising interest rates that causes volatililty.........but please don't donk me on the head if I've got it wrong

1. Correct.

2. I have just edited your original post in capitals. I think you have the gist.

3. A further example:



The '87 crash was October '87.

Observe the rise in yield into the end of '87.

jog on
duc

 

[eskys]

Hi ducati, I made a mistake there, I meant to say tapering or tapering of QE will cause rise in interest rates, not sure how to edit my post (got to explore that)

 

[qldfrog]

Hi ducati, I made a mistake there, I meant to say tapering or tapering of QE will cause rise in interest rates, not sure how to edit my post (got to explore that)

Eskys, you can only edit the post for a limited time after posting.
Error and typos happen.no drama
On major issues, you can ask for your post to be deleted..but will go via administrators so please use sparsely and think if it is worth their time

 

[eskys]

Eskys, you can only edit the post for a limited time after posting.
Error and typos happen.no drama
On major issues, you can ask for your post to be deleted..but will go via administrators so please use sparsely and think if it is worth their time

The more I think about this subject, the more confused I've become.....think I better stick to home economics and my simplistic way of navigating life

 

[ducati916]

Hi ducati, I made a mistake there, I meant to say tapering or tapering of QE will cause rise in interest rates, not sure how to edit my post (got to explore that)

Correct. Tapering will cause a rise in interest rates (yield) and a decrease in credit creation. Hence, a mitigating force against inflationary pressures, but concurrently increasing the risk of a deflationary event.

Which is exactly why Central Banks are caught whatever they do or do not do.

jog on
duc

 

[Rabbithop]

The more I think about this subject, the more confused I've become.....think I better stick to home economics and my simplistic way of navigating life

Don't let this type of common human big fingers typo error or our brain racing off with our thoughts faster than our fingers can type causing spelling error or a word or two missing in the sentence or before we can preview our message, the finger hit the post key.
Finally, Best to re read your post after posting, if error occurs, can edit or delete it quick.

 

[eskys]

So, higher interest rates to curb spending, hence prevent inflation? When I say spending, I mean, people going out and buying, eg over inflated stuff? Real estate for example? Is that why that Commsec tweets about real estate growth prediction? My brain is working over time now.....Dow red last night, good luck, everyone

 

[ducati916]

So, higher interest rates to curb spending, hence prevent inflation? When I say spending, I mean, people going out and buying, eg over inflated stuff? Real estate for example? Is that why that Commsec tweets about real estate growth prediction? My brain is working over time now.....Dow red last night, good luck, everyone

The effect on consumer spending occurs, but it is indirect.

(i) Cost of capital for mortgages increases for new mortgages and variable mortgages;
(ii) Equity withdrawal loans costs rise;
(iii) Bank loan costs increases;
(iv) Rising rates can indicate inflationary pressures, which is a loss of fiat purchasing power;
(v) PPI rising faster than CPI places pressure on companies profit margins, resulting in higher prices for consumers and a crisis when they cannot be raised further. Employees want higher wages, further pressure on margins, resulting eventually in business failures.

This is CORE PPI/CPI



jog on
duc

 

[eskys]

In other words, you are saying that rise in interest rates are cost related which I agree. So, materials costs go up, as with every thing else.

In light of all these, would it not be in the the interests of central banks to keep interest rates down low? So much talk of tapering, causing fears. The Fed will take these into account and dampen fears, by tapering softly to minimise disruptions to markets, businesses, lives etc...so if interest rates have to go up, they'll do it slowly and carefully, preventing a crash?