IWM Robot Fail-Safe Freeze
Since the 20 DMF Market Direction Model missed the buy signal by a tiny porosity hair in December and stayed neutral, the IWM robot ST/LT settings have looked and will continuously look for shorting the uptrend based on a “neutral” 20 DMF MDM signal.
That’s because the IWM robot backtests have always found edges in fading strength for reversion-to-the mean trades when in a “neutral” mode. It would have been long if the buy signal triggered back in December. It is an unfortunate repeat in reverse of what happened last August when the robot continuously tried to go long against the downtrend which was also qualified as a “neutral” market by the 20 DMF MDM.
The current uptrend is further fueled by abundant available liquidity and defiance of sovereign bonds.
As we wrote on the last short signal that was stopped out today, we are now objectively forced to trigger a fail-safe stop rule for the whole IWM robot system. It is programmed to only go short under present “ neutral” 20 DMF settings and it could become a one-way road to hell. So, until we have a non-neutral signal from the 20 DMF, we will freeze the IWM robot and let it in cash whatever the ST/LT settings say.
I agree in advance with all your reactions : The market is sometimes a cruel, cruel world for mechanical systems with rigid “lines in the sand” rules. At times, it will save you from a catastrophe, but at other times it can become stubbornly stupid because of a microscopic indicator miss. We encouraged you to avoid leverage, but we cannot be confident that the IWM robot will help you improve your performance in the very near term and feel compelled to responsibly make this drastic decision.
The GDX robot is in no way concerned by this event.
Billy
20DMF Inversed ETF Confirmations
[QUOTE=Billy;20239]Since the 20 DMF Market Direction Model missed the buy signal by a tiny porosity hair in December and stayed neutral, the IWM robot ST/LT settings have looked and will continuously look for shorting the uptrend based on a “neutral” 20 DMF MDM signal.
That’s because the IWM robot backtests have always found edges in fading strength for reversion-to-the mean trades when in a “neutral” mode. It would have been long if the buy signal triggered back in December. It is an unfortunate repeat in reverse of what happened last August when the robot continuously tried to go long against the downtrend which was also qualified as a “neutral” market by the 20 DMF MDM.
The current uptrend is further fueled by abundant available liquidity and defiance of sovereign bonds.
As we wrote on the last short signal that was stopped out today, we are now objectively forced to trigger a fail-safe stop rule for the whole IWM robot system. It is programmed to only go short under present “ neutral” 20 DMF settings and it could become a one-way road to hell. So, until we have a non-neutral signal from the 20 DMF, we will freeze the IWM robot and let it in cash whatever the ST/LT settings say.
I agree in advance with all your reactions : The market is sometimes a cruel, cruel world for mechanical systems with rigid “lines in the sand” rules. At times, it will save you from a catastrophe, but at other times it can become stubbornly stupid because of a microscopic indicator miss. We encouraged you to avoid leverage, but we cannot be confident that the IWM robot will help you improve your performance in the very near term and feel compelled to responsibly make this drastic decision.
The GDX robot is in no way concerned by this event.
Billy[/QUOTE]
Billy & Pascal,
As you are looking at these issues; I have a question regarding the "robustness" added by the inverse ETF confirmations regarding short 20DMF signals. In [I]20DMF evolution: November 14, 2010 [/I], (if I understand it correctly): the 20DMF true signal passes thru zero line[B] without[/B] SDS confirmation = 321.42% cum return (Table D) and the 20DMF with ETF's confirmation = 347.40% (Table E), is the 26% difference in cumulative return statistically significant given that the data only goes back to 2007? Also - did the 20DMF rules model fail to issue a short signal in late July 2011(?) and was it due to the failed confirmation of the inverse ETFs? If this is correct; have you updated the cumulative return back test data for the efficacy of the inverse ETF confirmation after that sell off? I understand the logic of the ETF confirmation, such that institutional investors will hedge instead of selling - but at certain times does fear cause them to just dump stocks?
Greg