This simple strategy had beaten buy-n-hold by a wide margin overall in last 17 years. CAGR of 10% is good especially given the short time the strategy spends in the market. IMO time is one of the safest risk control a strategy can have. You can see for yourself the results, consistency and other ratios etc in the following two images along with my annotations.
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| Strategy - Equity Curve, Weekly Returns, Drawdowns |
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| Strategy - Performance Analytics |
Currently the max drawdown of this method is 20%. That is too high for my comfort. One of my reasons for sharing this method on the blog is to hear your thoughts and suggestions on ways one can reduce the draw down of this strategy. Any suggestions?
Wish you all good health and good trading!
5 comments:
Hi,
My suggestions:
1. Implement more strategies that historically has low correllations.
2. Trade other instruments, debt for example.
3. Include daytrading strategies. The corellation between daytrading and EOD can be reduced very much.
IMO, you don't have to do something about the strategy, just trade smaller and diversify to other strategies. All these "simple" strategies are very good!
Just my 2 cents.
Hi Oddmund,
Thanks for your excellent insights. I plan to pursue your suggestions and share my findings in future posts. Currently I have couple ideas on how to go about for 1 and 3 but not for 2.
Regards
Hi, yes number 2 is very difficult. I only trade stocks at the moment, and corellations have increased over the last couple of years. Right now I'm looking into SPY and others and have some ideas to trade. But certainly not easy!
If I understood the system correctly (hold 1 day?), the periods of underperformance are likely to do with the holding period missing bunch of some bullish runs. The great performance during highly volatile times seems to confirm this and there's where you get a lot of "buy low" entries that quickly capture profits. It essentially looks like sort of a limit based/anticipatory (buy low instead of wait for breakout) scalping strategy but on the daily timeframe.
Some ideas to improve it could be basing the exit strat on the overall market conditions - you wouldn't exit so soon unless it was a very volatile time. eg. market dips sometimes on some news that aren't really that big deal and will be soon forgotten. Trying to algorithmically decide whether the current dip is just a blip or will be followed by more dips might be difficult. Possible approaches might be to either look at the performance of past x trades or lack entry opportunities or more data sources (open interest informations, volatility etc). Some also believe in having shorter moving averages in addition to 200 day - if you believe in market cycles, phases and such. I don't but I suppose if there's enough believers such can become a self-fullfilling prophecy.
Hi Anonymous - Thanks for the suggestions. You are right. The strategy is more or less like a scalping strategy but on daily time frame.
I would imagine looking @ past x trades to qualify next signal would be similar to applying a moving average on equity curve and filtering signals accordingly. Given the trendy nature of the equity curve that could be a fruitful investigation.
Volatility also appears to be a interesting filter to investigate given losses/flat periods seem to be more during low volatility periods as you suggested.
Thanks for the suggestions. I appreciate it.
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