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Thread: Combo-MF Position Sizing

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  1. #1
    Join Date
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    After the different posts yesterday, it became clear to me that there was somewhere an error in my back tests. The trades that where generated with my back test software for some of the S&P sub-components where not inline with the signals logged in the XLX_Trades Excel file.
    My back tests are based on signal changes. These signal changes are logged in a file that I have manually created. I created this file in March from data that I had found somewhere on this site. From that moment one, I update manually every day this file with the data from the first sheet in the XLX_Trades file that Pascal updates every day.
    If I now compare my signals from March 7 on, my file is correct. However: before March 7 there are differences in my manually created file and the history that is recorded on the different sheets that hold the data for the different sub-components in the XLX_Trades excel. I have checked only one model (XLE) and found some significant changes.
    I will have to recreate my signal file. This will take me some time. After that, I will rerun my back tests and report back again.

    PdP

  2. #2
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    Pascal,

    I have compared trade per trade the data out of your XLX_Trades.
    I have only done XLE for now.
    I see in your trades four events where a Bought Oversold trade on a certain date was followed by the same type of trade the next day. I presume these may be merged (trade continues).
    This is a difference not to be mentioned.

    A second difference is that I will open/close a trade the day after the signal. Because the EOD signals are generated after the close, the logical use for an end-user like me is to trade those signals at the next open. In your statistics you count the close on the day of the signal, right?
    I now have a total return on the XLE model between 2010 and now of 39.92%. You stated yesterday a total of 42.6%. This differences is small, explicable and negligible.

    The third difference that I have found is not so easy to comprehend.
    You have replied yesterday with some statistics concerning the XLE trades. Your best type of trade is Short with a total return of 27.1%.
    If I run my back tests, I get only 5.74% for SHORT trades. The best performance I get is with Bought Oversold and delivers 30.31%. You have for Bought Oversold only 8.4%.
    I am sorry, but one of us must be wrong here somewhere. I have now spend more then 6 hours looking and searching and can not find anything wrong with my signals nor trades for the XLE model.

    I have attached my trades in an excel file. Can you please have a look and compare these with your trades? I do not find what's wrong with my trades.

    Thanks

    PdP
    Attached Images  
    Attached Files

  3. #3
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    Pascal,

    I do not want to spam you, but I would like to get confirmation if the signals I have used are now OK.
    An overview of the results of my back tests are attached.
    These trades are performed with no stop-loss over the period from beginning of 2010 until now (EOD yesterday).
    No costs transactions are calculated.

    At first view, I would adopt the signals the following way:
    GDX: only Bought Oversold & Shorted Overbought
    XLB: all signals
    XLE: all signals
    XLF: skip Bought
    XLI: all signals
    XLK: all signals
    XLP: only Bought Oversold & Shorted Overbought
    XLU: skip Shorted
    XLV: skip Shorted & Shorted Overbought
    XLY: skip Shorted Overbought

    Do you concur?
    Attached Images  

  4. #4
    Quote Originally Posted by pdp-brugge View Post
    Pascal,

    I do not want to spam you, but I would like to get confirmation if the signals I have used are now OK.
    An overview of the results of my back tests are attached.
    These trades are performed with no stop-loss over the period from beginning of 2010 until now (EOD yesterday).
    No costs transactions are calculated.

    At first view, I would adopt the signals the following way:
    GDX: only Bought Oversold & Shorted Overbought
    XLB: all signals
    XLE: all signals
    XLF: skip Bought
    XLI: all signals
    XLK: all signals
    XLP: only Bought Oversold & Shorted Overbought
    XLU: skip Shorted
    XLV: skip Shorted & Shorted Overbought
    XLY: skip Shorted Overbought

    Do you concur?

    Thanks for publishing this table: I did not take the time to do it myself, as I have been busy with the RT system.
    This table makes sense.

    If you want to trade only some signals of each XLX, I believe that it is important to dig a few more data:


    1. On the signal correlation

    XLX are all part of the S&P500 group, which means that they are probably highly correlated. How correlated are for example the Bought Oversold signals of each component? Is it interesting to trade them all, to concentrate on the first three signals for example or to trade the most volatile of the these XLX.

    2. On the XLX and 20DMF Correlation

    Each XLX model is based on the weighted MF of each stock that is included into the XLX component. The model is somewhat different from the 20DMF, which is mainly a sector based model.

    It could be interesting to see if for each component, the Bought OS or Shorted OB signals are issued concurrently, earlier or later than the 20DMF signal. Is it then better to wait for a 20DMF confirmation signal or to already invest some money in the XLX, before having a market confirmation?


    3. On the XLX and your combo Correlation

    You can do the same work with your own combo strategy.

    A comment on GDX

    On a final note, we can see that GDX EOD is performing poorly for Buy/Short signals. This is due to the whipsawing character of the ETF on an EOD base. The RT signal works much better, especially combined to the LT/ST edge calculation for each trade.

    Thank you for your work.



    Pascal

  5. #5
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    Pascal,

    Thanks for your reply.

    Meanwhile I have continued with my work on the XLX models.
    I have added extra filters following a detailed analysis of all the trades. These filters will look at the state of the 20DMF before each trade is made. If the trade is statistically not beneficially, I do not make the trade.
    In the same way I have searched for correlation effects with bear/bull situations. If the 50MA is above the 20MA for an instrument, I call this instrument in "bull" situation. Under certain bull/bear situations certain trades are also statistically better or worse.
    It is amazing how efficient the trades can be improved by adding these filters. The number of trades are reduced (less fees and taxes) and the draw-down per model improves also.

    After applying stop-loss strategy (as described in my last paper), the results are even better for most of the models. It is notable that not all models improve at first sight with applying stop-loss. Because I need to know the average risk of each trade before making the trade, I need a stop-loss strategy for my risk based position sizing technique.

    Beside the Combo-MF model, I see that XLB, XLF, XLI, XLK and XLY are looking promising.
    I agree with you concerning the GDX model. Trading the EOD signals is not interesting. For this model I will wait until automatic RT signals are available.

    Now I will continue my back tests in search for the optimum position sizing parameters for these selected models (Combo-MF + XLB + XLF + XLI + XLK + XLY). I am going to test if it makes sense to trade three, four, five or six models simultaneously. Maybe only trading the strongest three models at a certain time will give better performance. This I will learn from the test I will perform now.

    Below are the details for the different models before and after applying the filters. The final table are the results after applying my stop-loss strategy. In these tables the trades are made at the open after a signal change using single ETFs. No transaction costs (fees and taxes) are calculated for these results.
    My final strategy will calculate the transaction costs and will use, when applicable, leverage and margin. More details will follow.

    PdP
    Attached Images  

  6. #6
    Quote Originally Posted by Pascal View Post
    Thanks for publishing this table: I did not take the time to do it myself, as I have been busy with the RT system.
    This table makes sense.

    If you want to trade only some signals of each XLX, I believe that it is important to dig a few more data:


    1. On the signal correlation

    XLX are all part of the S&P500 group, which means that they are probably highly correlated. How correlated are for example the Bought Oversold signals of each component? Is it interesting to trade them all, to concentrate on the first three signals for example or to trade the most volatile of the these XLX.

    2. On the XLX and 20DMF Correlation

    Each XLX model is based on the weighted MF of each stock that is included into the XLX component. The model is somewhat different from the 20DMF, which is mainly a sector based model.

    It could be interesting to see if for each component, the Bought OS or Shorted OB signals are issued concurrently, earlier or later than the 20DMF signal. Is it then better to wait for a 20DMF confirmation signal or to already invest some money in the XLX, before having a market confirmation?


    3. On the XLX and your combo Correlation

    You can do the same work with your own combo strategy.

    A comment on GDX

    On a final note, we can see that GDX EOD is performing poorly for Buy/Short signals. This is due to the whipsawing character of the ETF on an EOD base. The RT signal works much better, especially combined to the LT/ST edge calculation for each trade.

    Thank you for your work.



    Pascal
    Just to be absolutely certain Pascal, from the recent work carried out by PdP and you, are we to disgerard the Robot's EOD GDX signals going forward and only use the RT signals when available ?


    Thanks in advance.

    Trev

  7. #7
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    As my new back tests are showing now, I will be using 5 of the 9 sub-components of the S&P sectors: XLB, XLF, XLI, XLK & XLY besides my Combo-MF.
    Finding valid ETFs for these sub-components is easy except for XLY. XLY is the Consumer Discretionary Select Sector SPDR Fund. Stock-Encyclopedia.com gives UGE and UCC as double ETFs for respectively Consumer Goods and Consumer Services. I am a bit puzzled which one to choose: UGE or UCC

    Can anyone advice?

    PdP

  8. #8

    uge vs. ucc

    pdp,

    pascal, paul duncan, or someone else could probably advise better, but it looks to me like the composition of UCC http://finance.yahoo.com/q/hl?s=UCC+Holdings is more similar to XLY http://finance.yahoo.com/q/hl?s=XLY+Holdings than UGE http://finance.yahoo.com/q/hl?s=UGE+Holdings

    lisa

  9. #9
    Quote Originally Posted by manucastle View Post
    Just to be absolutely certain Pascal, from the recent work carried out by PdP and you, are we to disgerard the Robot's EOD GDX signals going forward and only use the RT signals when available ?


    Thanks in advance.

    Trev
    Pascal,

    Did you miss this question ?

    Trev

  10. #10
    Quote Originally Posted by manucastle View Post
    Pascal,

    Did you miss this question ?

    Trev
    Yes indeed! I had missed it!

    My previous work has shown that the RT signals are better than EOD, especially when combined to LT/ST edge calculations.

    This recent works show that if you take EOD signals, better trade the extreme signals (Buy Oversold or Short Overbought.) These signals lead to good return.

    So, in conclusion, I believe that it is best to trade RT extreme signals (BOS and SOB)


    Pascal

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