Quote Originally Posted by senco View Post
- Pascal, could you please clarify: Was it five stocks per sector, or total of five from all sectors? Was it buying when a 20DMF signal is issued, and holding until next short, or something else?
In synch with the 20DMF means that you buy when the 20DMF issues a buy signal and keep the position until the 20DMF signal change. The selection process is to first select the five weakest sectors in terms of 20D price RS, take all the stocks in these five sectors and sort them by AB/LER (Take the five closest to LB that show a strong accumulation pattern in terms of LER.) The idea here is to ride the shorts covering phase.

On the short side, the selection was also to short the weakest sectors in terms of price RS. And in these sectors, select the stocks whose AB is closest to UB with the weakest LER. This is also basically because shorts will go after the weakest stocks first that have bounced to their resistance level.

This is very different from a CANSLIM approach on stocks selection, but the "weakest sectors" selection process is rather risky, because it all depends on the MDM. If the MDM is wrong, you will be wrong footed in a big way. Also, I believe that after the initial shorts covering phase of the first 5 to 10 days after a buy signal, the advantage of targeting the weakest sector might disappear. Therefore, execution timing is rather important, which I do not believe is a strong point of a human trader. A human trader will enter slowly, consider risk/profits, etc. A large fund will be even more prudent I believe. However, the market is now mostly traded by machines. These trade momentum, volatility and liquidity machines tend to forget fundamentals (especially for the past few years.)


Quote Originally Posted by senco View Post
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- Could you please clarify the specific selection criteria: For longs, is it weak RS only, or you look at money flow as well? The timeframe for RS - is it 20 days? For shorts, what is the definition of 'overbought' in this context? ... I am trying to understand how EV is used here, and whether we are looking at simple mean reversion at the sector level.

I have encountered in the past added value for mean reversion of individual stocks within a strong sector, and for longer timeframe sector momentum; this seems to be quite different and intriguing.
The Overbought selection criterium was used only in the context of trading sectors not in synch with the market.
Hence I showed that buying every 20 days the weakest sectors was a strategy that produced good results in a strong uptrend (2009) and selling the most overbought sectors every 20 days was a strategy that worked well in a continuously down market (2008). Both strategies worked miserably in 2010 and 2011. This means that we need to work in synch with the market.

This is also the reason why the stock filters must be used also in synch with the market direction.



Pascal