Ivy-10 Portfolio 2015 Update

April 18, 2016 5:00 am0 comments

It’s that time of year to update the performance of the Ivy-10 Portfolio. What is the Ivy-10 Portfolio? Back in 2012 I finished reading a very interesting book called “The Ivy Portfolio”. This book was written by two money managers, Mebane Faber and Eric Richardson, who work at Cambria Investment Management. The authors wanted to answer the question of why money managers who manage some of the world’s best Ivy League schools produce such consistent results. Routinely Harvard and Yale endowments produce double digit annual returns. Since 1985 Yale University has returned around 16% annual returns and Harvard over 15% annual returns. Not only did they produce outstanding returns, but they did it by also reducing volatility and drawdown. This inspired […]

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This Simple Indicator Makes Money Again and Again

April 11, 2016 5:00 am44 comments

Here we are four months into 2016 and I’ve not updated some of the more interesting articles. One of those is Connors’ 2-period RSI strategy. This is a very popular trading method by Larry Connors and Cesar Alvarez. We all know there are no magic indicators but there is an indicator that certainly acted like magic over several decades. What indicator is it? Our reliable RSI indicator. The modified 2-period RSI trading model makes new highs in 2015. Click To Tweet Over the past few years the standard 2-period trading model as defined in the book, “Short Term Trading Strategies That Work”, has been in a drawdown. During 2011 the market experienced a sudden and sustained drop which put the trading model into loss. Recall, the […]

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Improving The Summing Strategy

April 4, 2016 5:00 am2 comments

In a recent series of articles by Kevin Davey, a method of combining multiple trading strategies into one single strategy was presented. Kevin’s concept is a great way to tackle the issues of trading multiple systems on the same instrument. Kevin’s technique is to create a “summing” strategy where there is one single buy or sell signal and the number of contracts are based upon which strategy has been triggered. Traditionally, I code systems together into one single strategy where the system will have multiple entry and exit points. My technique has its own unique set of problems and I think Kevin’s “summing” concept is better. If you’ve not read Kevin’s articles you can find the links below. Trading Multiple Strategies With The Same Instrument – Part […]

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Yes, You Can Time the Market. How It Works, And Why

March 21, 2016 5:00 am5 comments

One of the most commonly cited maxims is that market timing is impossible. In fact, empirical evidence makes a compelling case that market timing is feasible and can yield substantial economic benefits. What’s more, we even understand why it works. For the typical portfolio investor, applying simple techniques to adjust their market exposure can prevent substantial losses during market downturns. The Background From Empirical and Theoretical Research For the last 50 years, since the work of Paul Samuelson, the prevailing view among economists has been that markets are (mostly) efficient and they follow a random walk. Empirical evidence to the contrary was mostly regarded as anomalous and/or unimportant economically. Over time, however, evidence has accumulated that market effects may persist […]

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Trading Multiple Strategies With The Same Instrument – Part 3

March 7, 2016 5:00 am2 comments

In the last two articles (article 1, article 2), I discussed the need for trading multiple strategies with the same instrument in the same account. This type of capability is very important to a trader who wishes to trade a diversified portfolio, while at the same time efficiently managing margin. Unfortunately, with many platforms this capability is very tough to achieve. In the last article I introduced a template that could be used to convert a “standard” strategy into a strategy that could eventually be combined with other strategies, and produce the same overall performance that each strategy combined would produce. Unfortunately, with that method, certain nice and arguably critical features (such as standard stop losses and profit targets) have […]

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Trading Multiple Strategies With The Same Instrument – Part 2

February 29, 2016 5:00 am10 comments

In the previous article, I discussed the need for trading multiple strategies with the same instrument in the same account. This type of capability is very important to a trader who wishes to trade a diversified portfolio, while at the same time efficiently managing margin. Unfortunately, one of the limitations of Tradestation, my trading platform of choice, is that this capability is very tough to achieve. As you will recall from the earlier article, we discussed six different options to trade multiple strategies with the same instrument. In this article, we will layout the process and the code to create a summing strategy, which was Option number 6. The steps to take in such an approach are as follows: Create […]

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Trading Multiple Strategies With The Same Instrument – Part 1

February 22, 2016 5:00 am8 comments

Tradestation is a pretty amazing testing and development platform. I’ve been using it for over 10 years, and I’ve been very happy overall with it. Sure, there are certain aspects of it I don’t like, and certain things that are hard to do, but I think that is true of almost any platform. My biggest pet peeve with Tradestation is that it is hard to trade 2 automated strategies in the same market at the same time. Why is this even important? Why not just trade the best strategy, and shelve the one that does not perform as well? Many people do just that; unfortunately they usually pick the wrong strategy to trade! I take the opposite approach in my […]

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Sharpe Ratio – the right answer to the wrong question?

December 21, 2015 5:00 am3 comments

Sharpe was the right answer First, let’s start with what Sharpe does well. There are two things it does well: Cross-asset unified measure: we all know that the most important component in alpha generation is asset allocation. Now, the difficulty is to have a single measure of risk-adjusted measure of alpha. This is where Sharpe did the job. It could give a single number across many asset classes: be it fixed income, equities, commodities, etc. Uncertainty: the human brain is hard-wired to associate uncertainty with risk. It triggers the amygdala and activates the fight, flight or freeze reflex (see one of my posts about fear and greed). So, Sharpe is a good measure of uncertainty: it quantifies units of uncertainty-adjusted […]

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Avoiding Stock Market Crashes with the Hi-Lo Index of the S&P500

November 23, 2015 5:00 am2 comments

This daily indicator is calculated as the ratio of the number of S&P500 stocks that have reached new 3-month-highs minus those that have reached new 3-month-lows, divided 500. Exiting and entering the stock market according the indicator’s signals would have avoided major drawdowns of the market during the backtest period from Jan-2000 to Aug-2015. Switching according to the signals between stock ETFs and the Intermediate Treasury Bond ETF IEF would have produced much higher returns and lower drawdowns than buy-and-hold of the stock ETFs. The Hi-Lo Index The index, expressed as a percentage, can vary from +100% to -100%. Over the backtest period it ranged from a minimum of -93% to a maximum of 62%, with the August 24, 2015 value being the third lowest at -77%, […]

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Dual Momentum – The Famous 5 Portfolio

November 2, 2015 5:00 am28 comments

This article describes a Dual Momentum study over a multi-asset ETFs basket with a new attempt to improve this well-known investing style. Dual Momentum strategies rely on two different very simple filters: absolute momentum and relative momentum. Absolute momentum (rule 1) is a trend following filter used to switch any selected assets that have a negative excess return over the risk-free rate to cash while relative momentum (rule 2) criteria compares returns of a basket different assets through a ranking list to highlight those assets with the highest return. I considered a time window of three months in my backtest, as it has shown the strongest results. Rule 1: If the asset shows that the last three months return is […]

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