Suggested IWM/GDX Allocation Levels

[Rembert]

In attachement a picture of a test I did in Amibroker based on the robot trades. It shows (when not taking into account strong/weak signals) that the optimal allocation (highest return for the least risk) is :

IWM: 68%
GDX: 32%

Of course like all backtests this is purely theoretical. But it kind of matches Paul's findings based on the ETF data alone. And it also matches Pascal's tests that show the combination of a double leverage Russel2K ETF combined with GDX works best.

If we'd be making a cocktail the recipe would be ... one part GDX, two parts IWM and a dash of lime.

[adam ali]

Rembert,

Could you tell us what the maximum DD is intra-trade, not closed trade with this combination?

Adam

[Rembert]

Rembert,

Could you tell us what the maximum DD is intra-trade, not closed trade with this combination?

Adam

Hi Adam,

I can't because the source data for this test is based on closed trade data.

The test scenario is as follows :

- generate equity curve data in Excel based on gain/loss of each trade
- load that data into Amibroker as a ticker
- repeat for the next system
- run the optimization on the 'virtual' tickers

[asomani]

In attachement a picture of a test I did in Amibroker based on the robot trades. It shows (when not taking into account strong/weak signals) that the optimal allocation (highest return for the least risk) is :

IWM: 68%
GDX: 32%

Of course like all backtests this is purely theoretical. But it kind of matches Paul's findings based on the ETF data alone. And it also matches Pascal's tests that show the combination of a double leverage Russel2K ETF combined with GDX works best.

If we'd be making a cocktail the recipe would be ... one part GDX, two parts IWM and a dash of lime.

Awesome stuff, Rembert.

Thank you sharing.

[Rembert]

This morning I was thinking have I done this right. Because I've build the equity curves without re-investing the profits. So tonight I'll do another test with re-investing of profits. We'll see if that gives different results.

[Rembert]

As promised in attachement an update of the test I did on the robot allocation levels.

[asomani]

As promised in attachement an update of the test I did on the robot allocation levels.

This is excellent work. It confirms what I think some of us had gathered, as well.

Thank you again, Rembert.

[Billy]

As promised in attachement an update of the test I did on the robot allocation levels.

Thank you Rembert. This is very instructive and helpful.
From our own research, optimal allocations can vary widely depending on the strength of the robot signals. For example, when GDX issues a very strong buy or sell signal, it is better to allocate 100% into GDX and 0% into IWM, whatever the strength of the IWM signal.
But under the same circumstances, with double leveraged IWM, it is best to allocate 50% to TWM/UWM and only 50% to GDX.
So, the use or lack of leverage is of major importance for correct allocation.
This research is still in progress and it tells us that the optimal allocation rules are far from straightforward when the systems like the robots can graduate leverage and the strength of the signals in presence.
Pascal and I will advise in this forum when we clearly see allocation edges based on the research.
Billy

[Rembert]

Thanks. Looking forward to your findings.

For a next test I might build equity curves with position sizing built into them based on strong/weak signals and see what results that gives in an optimization test.

[Harry]

With all the great discussion ongoing regarding position sizing, I wonder if it's time to update this thread using recent Robot returns to determine optimum allocation percentages?