StockFetcher Forums · Filter Exchange · PORTFOLIO SELECTION AND MANAGEMENT USING RISK/REWARD RATIOS<< 1 ... 5 6 7 8 9 ... 65 >>Post Follow-up
Kevin_in_GA
4,553 posts
msg #92126
Ignore Kevin_in_GA
5/5/2010 1:14:24 PM

just want to check Kevin you would still buy the highest Alpha ETF even if it look's like we are turning into a downtrend. We can use May 1st for example. This is why I posted your old filter it seems like another indicator is needed. You can see that your old filter I posted is showing sell signals on the highest Alpha ETFs.

Thanks,

Dave
+++++++++++++++++

These two filters can both be correct, but on different timeframes. The 401k filter (for lack of a better term) is designed to show relative strength of a given ETF over a 1-month and 3-month timefame. The purely price filter simply uses a prior low as a sell trigger - if the current price drops below the lowest prior low over a specific time period, you sell. One can use these in conjunction, but then this new combination would need to be backtested again to see if the additional indicators made any real contribution over the original filter.

My goal in writing the shorter 401k filter was to create a simple and effective investment allocation tool that could be used with longer term investment accounts and minimal effort. The underlying prinicples can be used for short-term trades as well.

davesaint86
269 posts
msg #92129
Ignore davesaint86
modified
5/5/2010 2:06:07 PM

Thanks Kevin!

I have one more question. Below is your ETF list that maps to typical 401K fund selections. The highest Alpha ETF at the end of February was IWM. The highest Alpha ETF at end of March was IWM. So based on your filter you would continue holding IWM until the end of the April and then run the filter to see what the highest Alpha ETF is at the top of the list. If it's different than IWM (say SHY) you would sell IWM and purchase SHY. So if a downturn started on April 16th and if April turns out to be a bad month for IWM I would assume you would follow the rules and still hold IWM to the end of the month. Am I correct? As a conservative strategy I wonder what is the difference in ROI would be if you use your filter during the "so-called" best six months Nov - April time period and in SHY the worst so-called six months time (May-Oct) period.

Thanks,
Dave


US Large Cap - SPY
US Large Cap Value - VTV
US Large Cap Growth - IVE
US Small Cap - IWM
Emerging Markets - EEM (although VWO is a better ranked ETF with a lower expense ratio)
Bond Fund - BND
Stable Income - MBB or IEI
Cash Equivalent - SHY


Kevin_in_GA
4,553 posts
msg #92131
Ignore Kevin_in_GA
modified
5/5/2010 2:37:09 PM

The backtesting has you hold the ETF until the end of the month, regardless of what happens during the month.

Guess what?

Since Jan 2009 it has returned 66.8% versus 33.8% for the SPY.

Since Jan 2008 it has returned 69.8% versus -15.4% for the SPY.

Since Jan 2007 it has returned 125.5% versus -11.1% for the SPY.

Since Jan 2006 it has returned 182.4% versus 3.0% for the SPY.

Since Jan 2005 it has returned 250.4% versus 8.0% for the SPY.

Since Jan 2004 it has returned 309.9% versus 19.5% for the SPY.

Since Jan 2003 it has returned 485.6% versus 53.2% for the SPY.

Numbers are from ETFreplay.com using the 50/50 settings with monthly rebalancing as needed.

Until someone runs at backtest with additional constraints that generates a higher yield over the same timeframe, I'll stick to this simple system.

hmsb4494
62 posts
msg #92133
Ignore hmsb4494
5/5/2010 2:46:49 PM

If I had returns like this over the last 7 years I would have mobs of people after me to manage their money !!!

Kevin_in_GA
4,553 posts
msg #92134
Ignore Kevin_in_GA
5/5/2010 2:52:52 PM

And for 20 out of 21 trading days you could watch TV or golf all day.

hmsb4494
62 posts
msg #92135
Ignore hmsb4494
5/5/2010 3:00:58 PM

Now thats a living---500% gains and millions in commissions!!!

davesaint86
269 posts
msg #92136
Ignore davesaint86
5/5/2010 3:12:23 PM

Kevin,

That's impressive. What does the 50/50 settings mean?

Thanks,

Dave

guymar
113 posts
msg #92137
Ignore guymar
5/5/2010 3:24:34 PM

My interpretation of Kevin's model returns 167% since June 2006. This means 10 000 USD become 26 796 USD at end of period (now). I am still optimizing it, and as I do manual backtesting, it takes time. If anyone wants my spreadsheet and knows

Kevin_in_GA
4,553 posts
msg #92138
Ignore Kevin_in_GA
5/5/2010 3:31:20 PM

50% weighting to the 3 month relative strength, 50% weighting to the 20 day relative strength.

PLEASE NOTE - ETFReplay.com uses a slightly different way to do this than the filter I wrote.

1. They look at the 20 day RS and rank them strongest to weakest. They then give a "1" to the top, a "2" to the next best, and a "3" to the lowest.

2. They do the same with the three month RS.

3. Now they multiply each ranking score by 50% and add them together. This is the same as just adding them and selecting the lowest aggregate score as the top pick. The way I do it is to sum the absolute score, not the ranking. Therefore there are occasional differences in ETF selection.

Their method yields a better overall return than mine, but I can't figure out how to sum the positional ranks for each ETF in a single filter. You can do this by hand, and it only takes about a minute, but it would be nice if I could build it into the filter - so far no luck.



guymar
113 posts
msg #92139
Ignore guymar
5/5/2010 3:41:09 PM

oops, part of my message got truncated. Basically: I am doing manual backtesting to have precise results, my spreadsheet is available if we can find a way to share it without being spammed.

I would prefer to use weekly rebalancing with 5 and 35 period together with the P*VMO oscillatior. This should work, but not for 401k. Give me a couple of days to come back with results. On the other hand: don't forget that we would really need to backtest rebalancing at every day of the month to eliminate "luck" from the equation. Meaning: result on a portfolio rebalancing eacht 2nd, each 3rd and so on to see if results are consitent. Don't forget, even over 4 years, you have only 48 occurences, hardly statistical proof.....

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