Sector Selection / IWM comparison: new Robot call 8/24/2011

[Pascal]

TIM,


It is almost an impossible task to optimize a specific holding period (23 days or 14 days) for your ETF selection method and apply it to the IWM Robot method that is far from these cycles. Below is a small statistics of the market direction calls for the IWM robot (Both strong and weak calls). If you take only the calls that last 25 days or more, you will see that they cover 17 trades (21% of the total number of trades), but that they include 71% of all the trading days. This means that the IWM robot is mainly a trend following method working on longer cycles than 23 or 14 days. Also, when a trade starts, we do not know if it will be a 2 days trade or a 50 days trade. Therefore, you cannot apply a specific cycle at the start of the trade, which is what you are trying to do.

I however believe that your investment method could work very well independently of the robots and I encourage you to post on the VIT forum your findings about the ETF cycles and how to select the best ETF within their cycle.


Pascal

Just to be specific, these are the numbers for the average return for each sector rank in my model for 23 day rolling returns and 14 day rolling returns:

(NOTE: there are 10 listed instead of 9 because I included the S&P as the "average sector", normally in position 5 or 6)

For 23 days (long)

1 1.16%
2 .81%
3 .25%
4 .52%
5 .52%
6 .51%
7 .88%
8 .25%
9 .11%
10 .54%

For 14 days (short)

1 .69%
2 .63%
3 .11%
4 .34%
5 .26%
6 .32%
7 .51%
8 .07%
9 -.01%
10 .31%

As can be seen, in both holding periods, rank 1 vastly outperformed, while rank 10 performed at or slightly below average.

I'll do some work optimizing these kinds of holding periods, but even if the model were optimized for these short periods, there is the nagging problem of it not working correctly with the listed trigger dates on the IWM Robot.

Tim