Quote Originally Posted by Billy View Post
Trev,

The equity markets turning "bearish for an extended period of time" would actually be an excellent environment for making money with the IWM robot. All the robot needs is a real trend to follow - up or down- to outperform significantly. I don't see the problem, quite the contrary since the robot could at last excel outside of a multi-month choppy market.

GDX is the least correlated instrument to IWM. Our previous research didn't find any instrument diversification improving the long term risk-adjusted performance of a 50%/50% IWM/GDX robot allocation. But we remain open to any suggestion with a proven allocation edge. If we knew an instrument that "proved generally bullish" when IWM was bearish, we would of course already have made a robot for it. I wish it was so easy!

Finally, in my view, the biggest mistake one can make is to be "fully invested at all times". Current times are a good demonstration of how ST/LT probabilities are simply unreliable because the backtesting sample of similar trend-transitioning conditions is too small. Your only probabilistic hedge is to stay in cash and so is the robot. Once conditions normalize, the robot's probabilities will be our best guide once again.

Billy
Thanks for your quick reply Billy,

I am probably going to show my ignorance here but I never learned anything by not asking stupid questions :O)

Lets for example add to the Robots a bond fund and we need an ETF with good liquidity so lets choose SHY (iShares Barclays 1-3 Year Treasury Bond).

This fund has a negative correlation with GDX of -0.10 and with IWM of -0.41 over the last 5 years.

http://www.assetcorrelation.com/user/add_to_custom

Would this not be a good alternative to make some money during the times when both GDX and IWM Robot signals are in cash. Or on the other hand be simply a better investment at times than the other two ?

I hope you can indulge me.

Trev