20dmf

[John.Jacobs.EV]

So, regarding time, I guess it's a question of how often markets are trending vs. range-bound. Based on your experience and knowledge, what would you say this is? I've heard some say the market is trending 1/3 of the time and range-bound 2/3 of the time. Is this true?

The market is not typically range bound, or flat, this much of the time. A way I've found to test this is to determine peak and trough dates combined with periods of time when the movement up and down is within a range of three percent either way. In other words, when the movement is very minor this reflects a range-bound, or flat, market that is pretty much going nowhere.

The actual percentage of time in a flat market all depends on what you require the bull and bear trending market moves to be. The following table shows a move anywhere from 7% to 20%. The date range for this on the S&P 500 is 1970 to present.



So for 20% trend-moves in the S&P 500 the amount of time in a range-bound market is 24.91%. When you drop this to 7% the time in a flat market moves down to 18.97%. If you average all four you end up with 22.40%.

This is the same thing but for the periods from 2000 to present:



The average of all four is 22.15%. So it is pretty clear that the last eleven years have not been all that much different than the longer period of 1970-2011.

[asomani]

The market is not typically range bound, or flat, this much of the time. A way I've found to test this is to determine peak and trough dates combined with periods of time when the movement up and down is within a range of three percent either way. In other words, when the movement is very minor this reflects a range-bound, or flat, market that is pretty much going nowhere.

The actual percentage of time in a flat market all depends on what you require the bull and bear trending market moves to be. The following table shows a move anywhere from 7% to 20%. The date range for this on the S&P 500 is 1970 to present.



So for 20% trend-moves in the S&P 500 the amount of time in a range-bound market is 24.91%. When you drop this to 7% the time in a flat market moves down to 18.97%. If you average all four you end up with 22.40%.

This is the same thing but for the periods from 2000 to present:



The average of all four is 22.15%. So it is pretty clear that the last eleven years have not been all that much different than the longer period of 1970-2011.

Thanks for sharing that. Excellent work.

FWIW, I did a similar study today using different criteria (a number of methods to measure how often the market is in a clear bull trend or clear bear trend). I found that for 2000-2010, the SPX was in a clear bull or clear bear trend (i.e. not a flat market) 74% of the time - meaning it was range-bound 26% of the time.

Pretty close to your numbers!

[asomani]

Aly,
I've heard and read for years the same 2/3 and 1/3 proportion.
But it all really depends on the timeframe you're looking at. I know traders in this forum who deem a 1-hour trend an eternity and others who are only looking at monthly trends!
For the robot, ST is a 3-day horizon and LT is a 10-day horizon. It seems to be the best timeframe compromises for optimizing what we are trying to achieve: consistent compounded (very) long term risk-adjusted returns.
I suggest that you explore the Market Sci blog archives for their posts about research on mean-reversion and trend-following markets. They were big promoters of mean-reversion strategies until they discovered that for the last few years a shift clearly happened in favor of trend-following strategies. They explain why they think this phenomenon can only accelerate in the years ahead.
I think also that modern algo and HFT trading can only precipitate more trend-following.
Billy

Thanks for the tips, Billy.

Will take a look at those archives and ponder on your thoughts as well.

[adam ali]

Pascal,

Could you tell me the gain/loss of the 20DMF short trade initiated on May 5th (the last Excel file I have shows it as open). Also, would it be possible to put an updated 20DMF Excel trade file on the site so it's easily accessible?

Thanks again,

Adam

[Pascal]

Pascal,

Could you tell me the gain/loss of the 20DMF short trade initiated on May 5th (the last Excel file I have shows it as open). Also, would it be possible to put an updated 20DMF Excel trade file on the site so it's easily accessible?

Thanks again,

Adam

Attached.

Pascal

20DMF_Trades.xls