Quote Originally Posted by Billy View Post
The main problem with a neutral 20 DMF signal and a TEV that remains extremely extended is that the robot’s LT/ST settings will always look for shorting no matter how long the price uptrend continues. There is no fail-safe parachute.

We were ready to introduce a new fail-safe trigger, but only after clear evidence from backtested statistical studies. And Pascal’s research is pointing to a favorable outcome if shorting into strength today or tomorrow.
He found 28 cases with a MF > 0.83 for 12 days in a row with an IWM price advance over + 3.5%. The question is: under such conditions, did the ETF keep up-trending or did it pullback?

On average, a higher close today is marking a top for the next 10 days with an average return of -2.61% within the next 10 days. A lower close today sees negative returns over the next 9 days with an average return of -0.96% after 10 days. If we have a higher close on Friday, the expected return would be – 1.00% within 10 days. If we have a lower close on Friday, then the expected return would be -2.5% within 10 days.
Due to the sparsity of the historical data, I think it is important to not only look at the expected return but also at other statistical measures of the return distribution such as percentiles (or median and quartiles). As a side note, I assume that a parameter reduction to a single MF variable and IWM price advance threshold was necessary in order to produce a sufficient number of cases to examine.

Trader D