Life has been busy and has kept me away from blogging, and from trading, mostly. Still, I can’t stay away from monitoring the markets, and, with the recent rally, I started asking myself – has the situation changed since the 200 day SMA signaled an exit. What do you think – make up your mind before reading further.
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In the previous post, I went through a simple exercise which, to me, clearly demonsrtates that 60% out of sample guess rate (on daily basis) for S&P 500 will generate ridiculous returns. From the feedback I got, it seemed that my example was somewhat unconvincing. Let’s dig a bit further then.
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One statistic which I find useful to form a first impression of a backtest is the success/winning percentage. Since it can mean different things, let’s be more precise: for a strategy over daily data, the winning percentage is the percentage of the days on which the strategy had positive returns (in other words, the strategy guessed the sign of the return correctly on these days). Now the question – if I see 60% winning percentage for a S&P 500 strategy, does/should my bullshit-alarm go off?
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Rotational strategies on ETFs have been a common occurrence on this blog, and I have been using something similar for real life trading for about two years now. Readers of this blog may have also noticed concerns about the stability of the computations of such strategies. At the end it turned out be a quirk in the data feed, not accounted for in my code.
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Last week was brutal for pretty much all markets. Surprisingly, it was bad even for the US dollar. The sharp and straight downward move was reminiscent of the descent of 2011. It’s time to review where does the major index stands from technical point of view.
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Tradelib is my framework which I have been using for backtesting and signal generation in my futures trading. My feeling is that it might be useful to others, and I have decided to open source it.
Unfortunately, I don’t have the time at the moment to open source any strategy implemented with it, and I am also too lazy to provide a step-by-step guide for it. If you have an interesting strategy which you don’t mind sharing with the rest of the world, let me know, and I may consider implementing it and adding it to the repository as an illustrative example.
I just noticed that Interactive Brokers has added some support for continues futures contracts! For me that’s a great feature and I certainly hope they will expand on it in the future. I’d love to see them providing automated roll over support and a continuous data feed – as a paid service, of course.
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Using a simple moving average to time markets has been a successful strategy over a very long period of time. Nothing to brag home about, but it cuts the drawdown of a buy and hold by about a half, sacrificing less than 1% of the CAGR in the process. In two words, simple yet effective. Here are the important numbers (using the S&P 500 index from 1994 to 2013, inclusive):
There are a lot of “winning” strategies for bull markets floating around. “Buy the pullbacks” is certainly one of them. Does this sound simple enough to implement to you? While I am no Sheldon Cooper (although I have a favorite couch seat), I still like to live in a somewhat well defined world, a world in which, there is much more information attached to a tip like “Buy the pullbacks”. Let’s start with a chart of the recent history of the S&P 500 ETF:
Time to start looking at the next month. Let’s start with the top five performing futures (ordered by winning percentage):