My trend following strategy and experience

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
BlueEars
Posts: 3816
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Re: My trend following strategy and experience

Post by BlueEars » Tue Apr 16, 2019 6:33 pm

DaftInvestor wrote:
Tue Apr 16, 2019 5:57 pm
So far - 3 months (1/4 of the year) into this market timing strategy of abandoning stocks has cost some nice gains.
Any regrets yet?
Suppose a Boglehead newbie started in August 2008. Would you think it was fair to ask such a question by October 2008?

thx1138
Posts: 1013
Joined: Fri Jul 12, 2013 2:14 pm

Re: My trend following strategy and experience

Post by thx1138 » Tue Apr 16, 2019 6:35 pm

DaftInvestor wrote:
Tue Apr 16, 2019 5:57 pm
So far - 3 months (1/4 of the year) into this market timing strategy of abandoning stocks has cost some nice gains.
Any regrets yet?
He’s been back in stocks per the trading strategy since Feb and he’s already addressed your question multiple times in the thread if you’d bother reading it.

tmcc
Posts: 311
Joined: Tue Feb 06, 2018 6:38 pm

Re: My trend following strategy and experience

Post by tmcc » Tue Apr 16, 2019 8:38 pm

I scanned a couple of pages but didn't see it.. are you using U-3 UER?

I have long been skeptical of the U-3 rate that they broadcast.

Did BLS recast the historical change for the methodology change in 1994?

Not nitpicking your numbers, just curious

User avatar
Topic Author
willthrill81
Posts: 15151
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Tue Apr 16, 2019 9:42 pm

tmcc wrote:
Tue Apr 16, 2019 8:38 pm
I scanned a couple of pages but didn't see it.. are you using U-3 UER?

I have long been skeptical of the U-3 rate that they broadcast.

Did BLS recast the historical change for the methodology change in 1994?

Not nitpicking your numbers, just curious
https://data.bls.gov/timeseries/lns14000000
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
Topic Author
willthrill81
Posts: 15151
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Tue Apr 16, 2019 9:45 pm

DaftInvestor wrote:
Tue Apr 16, 2019 5:57 pm
So far - 3 months (1/4 of the year) into this market timing strategy of abandoning stocks has cost some nice gains.
Any regrets yet?
Since 2014, TSM has had real annualized returns of 8.43%, while TBM has had real annualized returns of 1.22%.

Are you asking everyone who has held TBM for the last five years if they have any regrets yet?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

DaftInvestor
Posts: 4842
Joined: Wed Feb 19, 2014 10:11 am

Re: My trend following strategy and experience

Post by DaftInvestor » Wed Apr 17, 2019 6:53 am

thx1138 wrote:
Tue Apr 16, 2019 6:35 pm
DaftInvestor wrote:
Tue Apr 16, 2019 5:57 pm
So far - 3 months (1/4 of the year) into this market timing strategy of abandoning stocks has cost some nice gains.
Any regrets yet?
He’s been back in stocks per the trading strategy since Feb and he’s already addressed your question multiple times in the thread if you’d bother reading it.
Missed that - didn't read thoroughly all 10 pages. The way the original post read I thought the original post would be updated with updates/changes to the strategy.

DaftInvestor
Posts: 4842
Joined: Wed Feb 19, 2014 10:11 am

Re: My trend following strategy and experience

Post by DaftInvestor » Wed Apr 17, 2019 7:04 am

BlueEars wrote:
Tue Apr 16, 2019 6:33 pm
DaftInvestor wrote:
Tue Apr 16, 2019 5:57 pm
So far - 3 months (1/4 of the year) into this market timing strategy of abandoning stocks has cost some nice gains.
Any regrets yet?
Suppose a Boglehead newbie started in August 2008. Would you think it was fair to ask such a question by October 2008?
willthrill81 wrote:
Tue Apr 16, 2019 9:45 pm
DaftInvestor wrote:
Tue Apr 16, 2019 5:57 pm
So far - 3 months (1/4 of the year) into this market timing strategy of abandoning stocks has cost some nice gains.
Any regrets yet?
Since 2014, TSM has had real annualized returns of 8.43%, while TBM has had real annualized returns of 1.22%.

Are you asking everyone who has held TBM for the last five years if they have any regrets yet?
I don't see the relevance in comparing someone who sets up an AA strategy to weather 30-40 years of market swings with someone who uses shorter-term indicators to time entry in and out of the stock market as a whole.
Most market timer threads I have seen here over the years have folks talking about why they dump all stocks and normally the folks are either never heard from again - or - in many cases - we see they are followed up on years later with regret. I was merely curious if thoughts of the first 3 months of this strategy came with regrets. Sounds like the answer is "no comment, please answer another question".

thx1138
Posts: 1013
Joined: Fri Jul 12, 2013 2:14 pm

Re: My trend following strategy and experience

Post by thx1138 » Wed Apr 17, 2019 8:32 am

DaftInvestor wrote:
Wed Apr 17, 2019 6:53 am
Missed that - didn't read thoroughly all 10 pages. The way the original post read I thought the original post would be updated with updates/changes to the strategy.
Actually it would be a really good idea to periodically update the OP with a bolded/red/highlighted line about whether the strategy is currently "in" or "out" of equities and perhaps a history of the months when it was "out". The trading strategy is to be almost always "in" so updates would be infrequent. Since this thread is of continuing interest and keeps getting bumped that'd be a good way for new readers to quickly see where things lie.

User avatar
Topic Author
willthrill81
Posts: 15151
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Wed Apr 17, 2019 10:10 am

DaftInvestor wrote:
Wed Apr 17, 2019 7:04 am
BlueEars wrote:
Tue Apr 16, 2019 6:33 pm
DaftInvestor wrote:
Tue Apr 16, 2019 5:57 pm
So far - 3 months (1/4 of the year) into this market timing strategy of abandoning stocks has cost some nice gains.
Any regrets yet?
Suppose a Boglehead newbie started in August 2008. Would you think it was fair to ask such a question by October 2008?
willthrill81 wrote:
Tue Apr 16, 2019 9:45 pm
DaftInvestor wrote:
Tue Apr 16, 2019 5:57 pm
So far - 3 months (1/4 of the year) into this market timing strategy of abandoning stocks has cost some nice gains.
Any regrets yet?
Since 2014, TSM has had real annualized returns of 8.43%, while TBM has had real annualized returns of 1.22%.

Are you asking everyone who has held TBM for the last five years if they have any regrets yet?
I don't see the relevance in comparing someone who sets up an AA strategy to weather 30-40 years of market swings with someone who uses shorter-term indicators to time entry in and out of the stock market as a whole.
Most market timer threads I have seen here over the years have folks talking about why they dump all stocks and normally the folks are either never heard from again - or - in many cases - we see they are followed up on years later with regret. I was merely curious if thoughts of the first 3 months of this strategy came with regrets. Sounds like the answer is "no comment, please answer another question".
I didn't craft my strategy for the short-term. I intend to continue with it for decades. Making judgments on the basis of mere months of performance would be absurd, just as it would be if an investor 'converted' to buy-and-hold in late 2007 only to see their portfolio slashed in the following 18 months.

If you will read the thread, you'll see what I've explicitly said in response to your question. I see no need to repeat my answer here.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
Topic Author
willthrill81
Posts: 15151
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Wed Apr 17, 2019 10:22 am

thx1138 wrote:
Wed Apr 17, 2019 8:32 am
DaftInvestor wrote:
Wed Apr 17, 2019 6:53 am
Missed that - didn't read thoroughly all 10 pages. The way the original post read I thought the original post would be updated with updates/changes to the strategy.
Actually it would be a really good idea to periodically update the OP with a bolded/red/highlighted line about whether the strategy is currently "in" or "out" of equities and perhaps a history of the months when it was "out". The trading strategy is to be almost always "in" so updates would be infrequent. Since this thread is of continuing interest and keeps getting bumped that'd be a good way for new readers to quickly see where things lie.
Going forward, I'll do that. At the end of each year, I'll also post a summary of the year's trades and my portfolio performance.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
sergeant
Posts: 1303
Joined: Tue Dec 04, 2007 11:13 pm
Location: The Golden State

Re: My trend following strategy and experience

Post by sergeant » Wed Apr 17, 2019 2:52 pm

willthrill81 wrote:
Wed Apr 17, 2019 10:22 am
thx1138 wrote:
Wed Apr 17, 2019 8:32 am
DaftInvestor wrote:
Wed Apr 17, 2019 6:53 am
Missed that - didn't read thoroughly all 10 pages. The way the original post read I thought the original post would be updated with updates/changes to the strategy.
Actually it would be a really good idea to periodically update the OP with a bolded/red/highlighted line about whether the strategy is currently "in" or "out" of equities and perhaps a history of the months when it was "out". The trading strategy is to be almost always "in" so updates would be infrequent. Since this thread is of continuing interest and keeps getting bumped that'd be a good way for new readers to quickly see where things lie.
Going forward, I'll do that. At the end of each year, I'll also post a summary of the year's trades and my portfolio performance.
Thank you. I like following your experiment and this will make it much easier.
Lincoln 3 EOW! AA 40/60.

User avatar
Topic Author
willthrill81
Posts: 15151
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Sat May 04, 2019 10:31 am

Since the unemployment rate is playing limbo right now and is currently at its lowest point in 50 years, this requires me to remain long in equities; the current UER is 3.6% while the 12 month moving average for UER is 3.817%.

The second part of my strategy calls for me to remain mostly in emerging markets and mid-cap growth (recall that I don't have access to the same funds across all of my accounts; I have no EM fund in my 401k, for instance).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
HomerJ
Posts: 13574
Joined: Fri Jun 06, 2008 12:50 pm

Re: My trend following strategy and experience

Post by HomerJ » Sat May 04, 2019 12:23 pm

willthrill81 wrote:
Sat May 04, 2019 10:31 am
Since the unemployment rate is playing limbo right now and is currently at its lowest point in 50 years, this requires me to remain long in equities; the current UER is 3.6% while the 12 month moving average for UER is 3.817%.

The second part of my strategy calls for me to remain mostly in emerging markets and mid-cap growth (recall that I don't have access to the same funds across all of my accounts; I have no EM fund in my 401k, for instance).
Man that's a low 12 month moving average for UER now.

A small up-tick to 3.9% unemployment (which is still ridiculously good by historical standards) might have you out of the market again.
The J stands for Jay

fallingeggs
Posts: 76
Joined: Sat May 04, 2019 7:11 am

Re: My trend following strategy and experience

Post by fallingeggs » Sat May 04, 2019 12:35 pm

I have a rather strong affection for this strategy. I don't consider it particularly "market timing" let alone "market predicting." It's "recession indicating" with the recognition that (1) the start of a recession does not bode well for the stock market and (2) the stock market and broad economic metrics can indicate when a recession has started it is officially recognized as such by the Government two quarters later. I like to look at the following website monthly and think about what I'd actually do if enough warning signs blinked red: www.econpi.com/

To the nay-sayers... it's good to keep in mind that this strategy isn't attempting to, by definition, top tick the market. You'll be down some 15%-20% from the peak before the sell is triggered. This means that plenty of institutional investors have already correctly called the recession; something we have no hope in doing.

The weakness of any trend strategy, in my view, is when to get back into the market. The buy signals are too slow for my taste. I'd like to think I would just buy back into the market in small increments over a 6 or 12 month period once a recession has been recognized--or when the strategy tells me to buy--with the idea of buying the last of the panic down, the bottom, and the beginning of the ride up. One doesn't need to buy only at the very bottom to come out significantly on top. Cutting out only a portion of the draw down should be beneficial enough. I'm not greedy.

But I'll probably be to whimpy to sell.

User avatar
Topic Author
willthrill81
Posts: 15151
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Sat May 04, 2019 12:57 pm

HomerJ wrote:
Sat May 04, 2019 12:23 pm
willthrill81 wrote:
Sat May 04, 2019 10:31 am
Since the unemployment rate is playing limbo right now and is currently at its lowest point in 50 years, this requires me to remain long in equities; the current UER is 3.6% while the 12 month moving average for UER is 3.817%.

The second part of my strategy calls for me to remain mostly in emerging markets and mid-cap growth (recall that I don't have access to the same funds across all of my accounts; I have no EM fund in my 401k, for instance).
Man that's a low 12 month moving average for UER now.

A small up-tick to 3.9% unemployment (which is still ridiculously good by historical standards) might have you out of the market again.
Indeed. But the UER moving above its 12 MMA has historically led quite often to a recession, even when it started relatively low. For instance, the last time the UER was this low was 1969, and shortly thereafter, it increased significantly, and stocks dropped significantly.

And for those who may have forgotten, I won't move out of stocks unless both the UER is above its 12 MMA and stocks' 7 MMA is below that of bonds.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Thesaints
Posts: 2921
Joined: Tue Jun 20, 2017 12:25 am

Re: My trend following strategy and experience

Post by Thesaints » Sat May 04, 2019 1:51 pm

willthrill81 wrote:
Wed Apr 17, 2019 10:22 am
Going forward, I'll do that. At the end of each year, I'll also post a summary of the year's trades and my portfolio performance.
Maybe posting trades in advance ? I promise we are not going to front run you.
Obviously not your case, but the internet is full of ex-post trading wonders.

User avatar
BlueEars
Posts: 3816
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Re: My trend following strategy and experience

Post by BlueEars » Sat May 04, 2019 2:28 pm

fallingeggs wrote:
Sat May 04, 2019 12:35 pm
...

The weakness of any trend strategy, in my view, is when to get back into the market. The buy signals are too slow for my taste. I'd like to think I would just buy back into the market in small increments over a 6 or 12 month period once a recession has been recognized--or when the strategy tells me to buy--with the idea of buying the last of the panic down, the bottom, and the beginning of the ride up. One doesn't need to buy only at the very bottom to come out significantly on top. Cutting out only a portion of the draw down should be beneficial enough. I'm not greedy.

But I'll probably be to whimpy to sell.
The idea is to have a mechanical strategy as opposed to ad hoc. So perhaps one should investigate other buy back methods by back testing. Then your critique would have more teeth.

User avatar
Topic Author
willthrill81
Posts: 15151
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Sat May 04, 2019 2:36 pm

Thesaints wrote:
Sat May 04, 2019 1:51 pm
willthrill81 wrote:
Wed Apr 17, 2019 10:22 am
Going forward, I'll do that. At the end of each year, I'll also post a summary of the year's trades and my portfolio performance.
Maybe posting trades in advance ? I promise we are not going to front run you.
Obviously not your case, but the internet is full of ex-post trading wonders.
I don't know which trades I'm going to make until the day that I make them, if that's what you're asking. But I've already provided the asset classes I'm in along with when I make trades. I'm not going to provide intricate details on my entire portfolio every month due to the work involved. Once a year is more than enough for me.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Thesaints
Posts: 2921
Joined: Tue Jun 20, 2017 12:25 am

Re: My trend following strategy and experience

Post by Thesaints » Sat May 04, 2019 7:41 pm

It doesn't take much time to post trades here as they happen. Once a year it there will always be those cynics who will question your actual results. Especially when you beat the market year over year over year.
I mean they caught Madoff that way, didn't they ?

l1am
Posts: 233
Joined: Wed Mar 02, 2016 2:27 pm

Re: My trend following strategy and experience

Post by l1am » Sat May 04, 2019 8:20 pm

fallingeggs wrote:
Sat May 04, 2019 12:35 pm
I like to look at the following website monthly and think about what I'd actually do if enough warning signs blinked red: www.econpi.com/
That trend doesn't bode well right now :o

User avatar
Topic Author
willthrill81
Posts: 15151
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Sat May 04, 2019 9:19 pm

Thesaints wrote:
Sat May 04, 2019 7:41 pm
It doesn't take much time to post trades here as they happen. Once a year it there will always be those cynics who will question your actual results. Especially when you beat the market year over year over year.
I mean they caught Madoff that way, didn't they ?
I won't beat the market every year. Just this year, I'm lagging the S&P 500 by around 10% due to the whipsaw between mid-January and the end of February. Beating the market's absolute returns isn't my objective.

But yes, I fully expected a lot of cynicism when I started this thread, and my expectations were not disconfirmed. :wink:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
tadamsmar
Posts: 8581
Joined: Mon May 07, 2007 12:33 pm

Re: My trend following strategy and experience

Post by tadamsmar » Sun May 05, 2019 7:29 am

willthrill81 wrote:
Sat May 04, 2019 9:19 pm
Thesaints wrote:
Sat May 04, 2019 7:41 pm
It doesn't take much time to post trades here as they happen. Once a year it there will always be those cynics who will question your actual results. Especially when you beat the market year over year over year.
I mean they caught Madoff that way, didn't they ?
I won't beat the market every year. Just this year, I'm lagging the S&P 500 by around 10% due to the whipsaw between mid-January and the end of February. Beating the market's absolute returns isn't my objective.

But yes, I fully expected a lot of cynicism when I started this thread, and my expectations were not disconfirmed. :wink:
The cynicism that Thesaints is referring to is where someone questions your actual reported results in this ongoing case study you are posting about. I have not seen a single instance in this thread where someone has accused you of lying about anything, but perhaps I have missed something.

User avatar
tadamsmar
Posts: 8581
Joined: Mon May 07, 2007 12:33 pm

Re: My trend following strategy and experience

Post by tadamsmar » Sun May 05, 2019 7:48 am

Thesaints wrote:
Sat May 04, 2019 1:51 pm
willthrill81 wrote:
Wed Apr 17, 2019 10:22 am
Going forward, I'll do that. At the end of each year, I'll also post a summary of the year's trades and my portfolio performance.
Maybe posting trades in advance ? I promise we are not going to front run you.
Obviously not your case, but the internet is full of ex-post trading wonders.
If you had more data about the asset classes of his various fiduciaries, then you could do a pretty good job of predicting his trades in advance.

Actually, one of the criticisms of trend-following is that the rules constrain the user from following a seemingly obvious trend. There are situations where the user knows darn well that they are going to get a sell signal in a few weeks and the market is crashing but they are constrained to stay invested in the market until they actually see the signal.
Investors — at least those who are counting on timing to protect them — don't like to sit idly and lose money while they wait for their system to recognize "what any idiot can see," that the market is heading down.
https://www.marketwatch.com/story/why-m ... 2013-10-23

This argument (by Paul Merriman) is that most investors don't have the discipline to stick with it even if it provides the advantages that they are seeking. Merriman has decades of experience promoting trend following and he still uses it to a limited extent.

Of course, some investors bail out on the Boglehead approach as well for lack of discipline.

User avatar
tadamsmar
Posts: 8581
Joined: Mon May 07, 2007 12:33 pm

Re: My trend following strategy and experience

Post by tadamsmar » Sun May 05, 2019 7:48 am

Thesaints wrote:
Sat May 04, 2019 1:51 pm
willthrill81 wrote:
Wed Apr 17, 2019 10:22 am
Going forward, I'll do that. At the end of each year, I'll also post a summary of the year's trades and my portfolio performance.
Maybe posting trades in advance ? I promise we are not going to front run you.
Obviously not your case, but the internet is full of ex-post trading wonders.
If you had more data about the asset classes of his various fiduciaries, then you could do a pretty good job of predicting his trades in advance.

Actually, one of the criticisms of trend-following is that the rules constrain the user from following a seemingly obvious trend. There are situations where the user knows darn well that they are going to get a sell signal in a few weeks and the market is crashing but they are constrained to stay invested in the market until they actually see the signal.
Investors — at least those who are counting on timing to protect them — don't like to sit idly and lose money while they wait for their system to recognize "what any idiot can see," that the market is heading down.
https://www.marketwatch.com/story/why-m ... 2013-10-23

This argument (by Paul Merriman) is that most investors don't have the discipline to stick with it even if it provides the advantages that they are seeking. Merriman has decades of experience promoting trend following and he still uses it to a limited extent.

Of course, some investors bail out on the Boglehead approach as well for lack of discipline.

User avatar
Topic Author
willthrill81
Posts: 15151
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Sun May 05, 2019 10:40 am

tadamsmar wrote:
Sun May 05, 2019 7:48 am
Thesaints wrote:
Sat May 04, 2019 1:51 pm
willthrill81 wrote:
Wed Apr 17, 2019 10:22 am
Going forward, I'll do that. At the end of each year, I'll also post a summary of the year's trades and my portfolio performance.
Maybe posting trades in advance ? I promise we are not going to front run you.
Obviously not your case, but the internet is full of ex-post trading wonders.
If you had more data about the asset classes of his various fiduciaries, then you could do a pretty good job of predicting his trades in advance.

Actually, one of the criticisms of trend-following is that the rules constrain the user from following a seemingly obvious trend. There are situations where the user knows darn well that they are going to get a sell signal in a few weeks and the market is crashing but they are constrained to stay invested in the market until they actually see the signal.
Investors — at least those who are counting on timing to protect them — don't like to sit idly and lose money while they wait for their system to recognize "what any idiot can see," that the market is heading down.
https://www.marketwatch.com/story/why-m ... 2013-10-23

This argument (by Paul Merriman) is that most investors don't have the discipline to stick with it even if it provides the advantages that they are seeking. Merriman has decades of experience promoting trend following and he still uses it to a limited extent.

Of course, some investors bail out on the Boglehead approach as well for lack of discipline.
If it's that easy to see that a sell signal is coming up, please let me know. We'll beat the pants off the market. :wink:

But of course, it just seems easy at certain times to investors to predict which way the market is going next. My system involves no prediction whatsoever.

And you're exactly right about discipline. As I've noted above, one of my motivations for adopting trend following is because I do not believe that I could stay the course over the long-term with any buy-and-hold AA. Over the last decade, I'd be very tempted to take on more stock exposure. During a deep drawdown, the inverse would be true for me.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

LittleD
Posts: 220
Joined: Sun Jul 31, 2011 7:23 am

Re: My trend following strategy and experience

Post by LittleD » Mon May 06, 2019 5:29 am

I have read the thread and find your strategy very similar to mine with very similar rules for portfolio defense and portfolio offense. My main difference is, even though I track UER monthly, I'm not using that statistic for trading. I have been using the Conference Boards LEI statistics which includes, the Feds interest rate yield curve moves, employment from weekly unemployment claims, and about 8 other weighted statistics. I use a 6month SMA of the monthly rate of change. If it goes below zero and the SPY moves below the 43wk EMA, I move to a bond fund. Granted, the LEI stats only go back to around 1959 so not the history of the UER for sure. I also monitor the 4wk moving average of weekly unemployment claims against a 26wk SMA of 4wk unemployment claims. I probably spend much more time with my portfolio than you since Saturday mornings are devoted to review and analysis. I guess I enjoy that as much as I would playing a round of golf. My model did not get me out of stocks in December, January or February so I've done pretty will using this strategy all the way back past the 1990's. The only miss I have on an extended lookback is the 1987 crash, but, recovery was in about 3 months during that time. You really must be a glutton for punishment because any kind of market timing is strictly taboo here at the Bogleheads. Great work though! :sharebeer

User avatar
Topic Author
willthrill81
Posts: 15151
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Mon May 06, 2019 8:53 am

LittleD wrote:
Mon May 06, 2019 5:29 am
I have read the thread and find your strategy very similar to mine with very similar rules for portfolio defense and portfolio offense. My main difference is, even though I track UER monthly, I'm not using that statistic for trading. I have been using the Conference Boards LEI statistics which includes, the Feds interest rate yield curve moves, employment from weekly unemployment claims, and about 8 other weighted statistics. I use a 6month SMA of the monthly rate of change. If it goes below zero and the SPY moves below the 43wk EMA, I move to a bond fund. Granted, the LEI stats only go back to around 1959 so not the history of the UER for sure. I also monitor the 4wk moving average of weekly unemployment claims against a 26wk SMA of 4wk unemployment claims. I probably spend much more time with my portfolio than you since Saturday mornings are devoted to review and analysis. I guess I enjoy that as much as I would playing a round of golf. My model did not get me out of stocks in December, January or February so I've done pretty will using this strategy all the way back past the 1990's. The only miss I have on an extended lookback is the 1987 crash, but, recovery was in about 3 months during that time. You really must be a glutton for punishment because any kind of market timing is strictly taboo here at the Bogleheads. Great work though! :sharebeer
Thanks for the kind words.

Yes, the CB LEI looks to be a good indicator as well. One academic paper not too long ago found that using it would historically have outperformed the market while reducing downside risk as well since the 1970s, IIRC.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

LittleD
Posts: 220
Joined: Sun Jul 31, 2011 7:23 am

Re: My trend following strategy and experience

Post by LittleD » Mon May 06, 2019 8:59 am

Thanks for the kind response. Just one more caveat...the CB LEI usually comes out between the 21st to 25th of the month so I know half my vector before the last trading day of the month. That really helps prepare for a decision.

Still, I wish you good luck and fortune with your strategy.

User avatar
BlueEars
Posts: 3816
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Re: My trend following strategy and experience

Post by BlueEars » Mon May 06, 2019 9:23 am

LittleD wrote:
Mon May 06, 2019 5:29 am
I have read the thread and find your strategy very similar to mine with very similar rules for portfolio defense and portfolio offense. My main difference is, even though I track UER monthly, I'm not using that statistic for trading. I have been using the Conference Boards LEI statistics which includes, the Feds interest rate yield curve moves, employment from weekly unemployment claims, and about 8 other weighted statistics. I use a 6month SMA of the monthly rate of change. If it goes below zero and the SPY moves below the 43wk EMA, I move to a bond fund. Granted, the LEI stats only go back to around 1959 so not the history of the UER for sure. I also monitor the 4wk moving average of weekly unemployment claims against a 26wk SMA of 4wk unemployment claims. I probably spend much more time with my portfolio than you since Saturday mornings are devoted to review and analysis. I guess I enjoy that as much as I would playing a round of golf. My model did not get me out of stocks in December, January or February so I've done pretty will using this strategy all the way back past the 1990's. The only miss I have on an extended lookback is the 1987 crash, but, recovery was in about 3 months during that time. You really must be a glutton for punishment because any kind of market timing is strictly taboo here at the Bogleheads. Great work though! :sharebeer
Hi LittleD, I was aware of this source but have not seen the link to data going back to 1959. One can follow this as it comes out monthly but I'd like to see the data in a spreadsheet format back to 1959. Is it freely available? Do you have a link?

I have seen charts of it but not the actual data: https://www.google.com/search?channel=t ... yS9cJ0ArM:

fallingeggs
Posts: 76
Joined: Sat May 04, 2019 7:11 am

Re: My trend following strategy and experience

Post by fallingeggs » Mon May 06, 2019 9:40 am

BlueEars wrote:
Mon May 06, 2019 9:23 am
LittleD wrote:
Mon May 06, 2019 5:29 am
I have read the thread and find your strategy very similar to mine with very similar rules for portfolio defense and portfolio offense. My main difference is, even though I track UER monthly, I'm not using that statistic for trading. I have been using the Conference Boards LEI statistics which includes, the Feds interest rate yield curve moves, employment from weekly unemployment claims, and about 8 other weighted statistics. I use a 6month SMA of the monthly rate of change. If it goes below zero and the SPY moves below the 43wk EMA, I move to a bond fund. Granted, the LEI stats only go back to around 1959 so not the history of the UER for sure. I also monitor the 4wk moving average of weekly unemployment claims against a 26wk SMA of 4wk unemployment claims. I probably spend much more time with my portfolio than you since Saturday mornings are devoted to review and analysis. I guess I enjoy that as much as I would playing a round of golf. My model did not get me out of stocks in December, January or February so I've done pretty will using this strategy all the way back past the 1990's. The only miss I have on an extended lookback is the 1987 crash, but, recovery was in about 3 months during that time. You really must be a glutton for punishment because any kind of market timing is strictly taboo here at the Bogleheads. Great work though! :sharebeer
Hi LittleD, I was aware of this source but have not seen the link to data going back to 1959. One can follow this as it comes out monthly but I'd like to see the data in a spreadsheet format back to 1959. Is it freely available? Do you have a link?

I have seen charts of it but not the actual data: https://www.google.com/search?channel=t ... yS9cJ0ArM:
Not a direct answer to your question, but you may nevertheless find it interesting. iMarketSignals puts out their own index which is substantially the same at the LEI. It also has a pretty good track record of spotting recessions, allowing one to exit the market shortly after its peak.

See it here: https://imarketsignals.com/ims-business-cycle-index/

LittleD
Posts: 220
Joined: Sun Jul 31, 2011 7:23 am

Re: My trend following strategy and experience

Post by LittleD » Mon May 06, 2019 9:45 am

The Conference board sells the data if you want a full history. I use a graph produced by dshort - Advisor Perspectives that has a .png of the history and current level. It's not perfect but, dshort does update the current month Conference Board number each month and Jill Millinski does a great job of analysis.

https://www.advisorperspectives.com/ima ... ef1ba8.png

Here is a link you can access. dshort is one of the best economic websites available and they are timely at keeping updates.

User avatar
BlueEars
Posts: 3816
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Re: My trend following strategy and experience

Post by BlueEars » Mon May 06, 2019 9:46 am

fallingeggs wrote:
Mon May 06, 2019 9:40 am
Not a direct answer to your question, but you may nevertheless find it interesting. iMarketSignals puts out their own index which is substantially the same at the LEI. It also has a pretty good track record of spotting recessions, allowing one to exit the market shortly after its peak.

See it here: https://imarketsignals.com/ims-business-cycle-index/
Thanks, I will take a look at that. I currently use some of the FRED Treasury sources it uses.

LittleD
Posts: 220
Joined: Sun Jul 31, 2011 7:23 am

Re: My trend following strategy and experience

Post by LittleD » Mon May 06, 2019 9:52 am

[/quote]

Hi LittleD, I was aware of this source but have not seen the link to data going back to 1959. One can follow this as it comes out monthly but I'd like to see the data in a spreadsheet format back to 1959. Is it freely available? Do you have a link?

I have seen charts of it but not the actual data: https://www.google.com/search?channel=t ... yS9cJ0ArM:
[/quote]

Not a direct answer to your question, but you may nevertheless find it interesting. iMarketSignals puts out their own index which is substantially the same at the LEI. It also has a pretty good track record of spotting recessions, allowing one to exit the market shortly after its peak.

See it here: https://imarketsignals.com/ims-business-cycle-index/
[/quote]

I agree with you that this website imarketsignals does a nice job of monthly analysis using their own subset of drivers and weighting factors. They also have an unemployment page that gives perspectives on if a recession or economic downturn is coming. You could use either one as one of the vectors to make a monthly decision with SPY (S&P 500 with dividends) to determine a timing action to enact portfolio defense. They work and work well.

User avatar
BlueEars
Posts: 3816
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Re: My trend following strategy and experience

Post by BlueEars » Mon May 06, 2019 10:37 am

Here is a FRED Treasury link to a Leading Index chart and data set: https://fred.stlouisfed.org/series/USSLIND
The good part is that one can download the data to a spreadsheet. Unfortunately it only goes back to 1982.

LittleD
Posts: 220
Joined: Sun Jul 31, 2011 7:23 am

Re: My trend following strategy and experience

Post by LittleD » Mon May 06, 2019 10:54 am

I had the FRED link and have looked at their index in the past but, in many ways I found it a bit limiting when compared to the Conference Board work. They both work because they look at prime derivatives of the US economy. For me, I really just need to know a binary aspect of whether it is safe to be in the market next month from an economic perspective. The stock market itself is a leading indicator because it discounts the future news, earnings growth, and company investment likely to visit us in the future. I really have convinced myself that the past is the past and I'm spending most of my efforts looking at how to position my portfolio for the future. I'm pretty sure the future will be substantially different than the past.

abc132
Posts: 317
Joined: Thu Oct 18, 2018 1:11 am

Re: My trend following strategy and experience

Post by abc132 » Mon May 13, 2019 1:20 am

Am I correct in assuming the move to emerging markets has cost about another 5% loss vs total market?

User avatar
Forester
Posts: 620
Joined: Sat Jan 19, 2019 2:50 pm
Location: UK

Re: My trend following strategy and experience

Post by Forester » Mon May 13, 2019 2:37 am

Question for the trend followers: are you pure trend, or do you mix it up? For example 30% Trend; 30% Bonds; 40% Stocks.

This way, you lock in some degree of downside protection. I am wary of going all-in on one indicator, especially if they've missed a market downturn in the past. Even if the track record was spotless, I would be even more cautious, because it stinks of data mining and investing via the rear view mirror.

Another idea I've had is to create an indicator using CoT data. It would be interesting to see what proves to be predictive. Large specs vs Small specs. Or hedgers vs Small specs, with the hedgers pre-emptively catching the big market turns, but being "wrong" much of the time.

LittleD
Posts: 220
Joined: Sun Jul 31, 2011 7:23 am

Re: My trend following strategy and experience

Post by LittleD » Mon May 13, 2019 7:26 am

Part of my retirement portfolio works similar to that. Again these are tax deferred accounts. I use 40% trend with the caveat that I pick one or two top relative momentum funds (etf's) then 40% market (diversified etf's) and 20% taxable bonds ( SPLB or SPTL). I use a 4 bar EMA/13 bar EMA moving average crossover strategy for trading the Trend. I use an economic indicator (LEI) to inform me whether to be in the stock market at all. Otherwise, all bonds and cash for me. The LEI comes out monthly usually in the 3rd week of the month. My charts are set up for weekly bars.

abc132
Posts: 317
Joined: Thu Oct 18, 2018 1:11 am

Re: My trend following strategy and experience

Post by abc132 » Fri May 17, 2019 1:27 am

https://caia.org/sites/default/files/ma ... g_open.pdf

Here is a nice paper if anyone wants to see some idea of how market timing plans have done moving into the future, instead of looking at sites of how the best selected data-mined plans have done in the past.

The key dangers that stuck out to me were overconfidence in one's own ability to time the market, and missing out on the biggest gains that tend to cluster after a decline.

For those looking to avoid market declines, note that this strategy did not avoid a 20% loss last year, it in fact took all of the losses and missed out on much of the gains so far in 2019. We can't judge the method based on a few month's returns, but I do want to point out that one can buy products that are guaranteed not to lose money (balance must equal last years balance) for less than the 2% under performance that was acceptable to the original poster. That is someone could completely avoid both the 20% and 50% drops if that is the primary goal.

While this strategy is entertaining, I don't think it generally does a good job for someone wanting to avoid losses. You may need to believe in the ability of market timing and switching assets to over perform to make this a reasonable choice for an investment strategy.

User avatar
HomerJ
Posts: 13574
Joined: Fri Jun 06, 2008 12:50 pm

Re: My trend following strategy and experience

Post by HomerJ » Fri May 17, 2019 8:54 am

Hey will...

Do you ever lock some of that money away? Or plan to?

Your strategy has worked out pretty well since you've been 100% stocks for most of this last bull market. You probably have more than you expected or planned at this point.

As your portfolio grows, do you ever think about putting 10% or 20% in something safer, and take it out of the trading equation? Lock in some gains?
The J stands for Jay

User avatar
Topic Author
willthrill81
Posts: 15151
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Fri May 17, 2019 9:25 am

Forester wrote:
Mon May 13, 2019 2:37 am
Question for the trend followers: are you pure trend, or do you mix it up? For example 30% Trend; 30% Bonds; 40% Stocks.

This way, you lock in some degree of downside protection. I am wary of going all-in on one indicator, especially if they've missed a market downturn in the past. Even if the track record was spotless, I would be even more cautious, because it stinks of data mining and investing via the rear view mirror.
HomerJ wrote:
Fri May 17, 2019 8:54 am
Hey will...

Do you ever lock some of that money away? Or plan to?

Your strategy has worked out pretty well since you've been 100% stocks for most of this last bull market. You probably have more than you expected or planned at this point.

As your portfolio grows, do you ever think about putting 10% or 20% in something safer, and take it out of the trading equation? Lock in some gains?
Currently, I'm 100% TF. I have thought about moving some of it into fixed income when I get closer to retirement, maybe 30%, but I'm still ~17 years away from retirement and doubt that I'll move in that direction at all for a good decade.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
tadamsmar
Posts: 8581
Joined: Mon May 07, 2007 12:33 pm

Re: My trend following strategy and experience

Post by tadamsmar » Sun May 19, 2019 11:33 am

abc132 wrote:
Fri May 17, 2019 1:27 am
...I do want to point out that one can buy products that are guaranteed not to lose money (balance must equal last years balance) for less than the 2% under performance that was acceptable to the original poster.
Can you provide a specific product that guarantees less than 2% under performance?

I tried to google that and only found articles that said these funds use a very deceptive way to define "performance", like the simple average of each month of the S&P 500 price not including dividends. That "performance" came out to only 4.15% (vs the actual 8.3%) return before the 1.9% fee was removed:

https://money.cnn.com/2007/11/06/pf/fun ... 2007110813

But, maybe there are better ones that I don't know about.

abc132
Posts: 317
Joined: Thu Oct 18, 2018 1:11 am

Re: My trend following strategy and experience

Post by abc132 » Sun May 19, 2019 3:55 pm

tadamsmar wrote:
Sun May 19, 2019 11:33 am
abc132 wrote:
Fri May 17, 2019 1:27 am
...I do want to point out that one can buy products that are guaranteed not to lose money (balance must equal last years balance) for less than the 2% under performance that was acceptable to the original poster.
Can you provide a specific product that guarantees less than 2% under performance?

I tried to google that and only found articles that said these funds use a very deceptive way to define "performance", like the simple average of each month of the S&P 500 price not including dividends. That "performance" came out to only 4.15% (vs the actual 8.3%) return before the 1.9% fee was removed:

https://money.cnn.com/2007/11/06/pf/fun ... 2007110813

But, maybe there are better ones that I don't know about.
Here is the type of product I had in mind for reducing volatility when volatility matters. https://personal.vanguard.com/pdf/z071.pdf

I'm confused why someone in their 30's is trying to reduce volatility through market timing, when market volatility has little impact on their likely future returns. They believe they can

1. time the market
2. reduce volatility
3. not have to make any decisions
4. have a high probability of beating the market

If I went to an investing adviser and they told me all these things, I would be highly skeptical. If I asked them how their proposed implementation back tested, and they told me they never bothered to do so, I would run. That's just me, of course.

I think the community here has mostly given the OP a pass when it would be in his best interest, and more importantly in the best interest of those trying to copy such a strategy, if the forums were more skeptical. Other threads have encouraged back testing of a specific implementation, and I think those reading this thread might be surprised by the variance in performance of a strategy that rotates 100% of assets through one fund of whatever happens to be in someones accounts.

I've entertained the idea of creating a set of random stock results for various asset classes, and seeing if I can data mine a similarly performing winning strategy. I will postulate that it would be impossible not to be able to form a winning strategy even if the results are completely random, which should give some indication of how little a successfully back tested system means in-and-of-itself.

The expected value of a system would be something on the order of the difference of the real and completely random system.
Last edited by abc132 on Sun May 19, 2019 4:00 pm, edited 1 time in total.

User avatar
Topic Author
willthrill81
Posts: 15151
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Sun May 19, 2019 3:57 pm

The strategy I use has been backtested to WWII.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

abc132
Posts: 317
Joined: Thu Oct 18, 2018 1:11 am

Re: My trend following strategy and experience

Post by abc132 » Sun May 19, 2019 4:05 pm

willthrill81 wrote:
Sun May 19, 2019 3:57 pm
The strategy I use has been backtested to WWII.
You went through your account back to WWII, and rotated through whatever was available there?

Could you post the results?

The point is you have no idea how your implementation will change the results.

You seem to believe it doesn't matter, and you can enlighten me if this is not true.

abc132
Posts: 317
Joined: Thu Oct 18, 2018 1:11 am

Re: My trend following strategy and experience

Post by abc132 » Sun May 19, 2019 4:18 pm

If you can link me to the assets you have available in each account, I might find time to do some back testing for those interested in such a system.

thx1138
Posts: 1013
Joined: Fri Jul 12, 2013 2:14 pm

Re: My trend following strategy and experience

Post by thx1138 » Sun May 19, 2019 4:34 pm

abc132 wrote:
Sun May 19, 2019 4:05 pm
willthrill81 wrote:
Sun May 19, 2019 3:57 pm
The strategy I use has been backtested to WWII.
You went through your account back to WWII, and rotated through whatever was available there?

Could you post the results?

The point is you have no idea how your implementation will change the results.

You seem to believe it doesn't matter, and you can enlighten me if this is not true.
Have you bothered to read the PE posts linked at the top of the thread? They contain extensive back testing of multiple asset classes and indexes which should answer your questions without reinventing the wheel yourself.

abc132
Posts: 317
Joined: Thu Oct 18, 2018 1:11 am

Re: My trend following strategy and experience

Post by abc132 » Sun May 19, 2019 4:45 pm

thx1138 wrote:
Sun May 19, 2019 4:34 pm

Have you bothered to read the PE posts linked at the top of the thread? They contain extensive back testing of multiple asset classes and indexes which should answer your questions without reinventing the wheel yourself.
I'm 100% sure there will be nice back-tested results of any system being advocated.

I'm curious how much "whatever I have in my account" and being carefree about entry/exit points changes results.

Is the final result "strategy" or "luck"?

I could investigate this if the data is provided to backtest the OP's results, and I'm curious why this can would not be provided in the sake of making the thread more actionable.

thx1138
Posts: 1013
Joined: Fri Jul 12, 2013 2:14 pm

Re: My trend following strategy and experience

Post by thx1138 » Sun May 19, 2019 4:59 pm

abc132 wrote:
Sun May 19, 2019 4:45 pm
thx1138 wrote:
Sun May 19, 2019 4:34 pm

Have you bothered to read the PE posts linked at the top of the thread? They contain extensive back testing of multiple asset classes and indexes which should answer your questions without reinventing the wheel yourself.
I'm 100% sure there will be nice back-tested results of any system being advocated.

I'm curious how much "whatever I have in my account" and being carefree about entry/exit points changes results.

Is the final result "strategy" or "luck"?

I could investigate this if the data is provided to backtest the OP's results, and I'm curious why this can would not be provided in the sake of making the thread more actionable.
So no you didn’t read it and see it already has a massive amount of data showing the variation in out sample results for both specific assets and entry/exit points? By all means add another data point but it isn’t going to be new information of significance over what is already in there.

abc132
Posts: 317
Joined: Thu Oct 18, 2018 1:11 am

Re: My trend following strategy and experience

Post by abc132 » Sun May 19, 2019 5:29 pm

thx1138 wrote:
Sun May 19, 2019 4:59 pm
abc132 wrote:
Sun May 19, 2019 4:45 pm
thx1138 wrote:
Sun May 19, 2019 4:34 pm

Have you bothered to read the PE posts linked at the top of the thread? They contain extensive back testing of multiple asset classes and indexes which should answer your questions without reinventing the wheel yourself.
I'm 100% sure there will be nice back-tested results of any system being advocated.

I'm curious how much "whatever I have in my account" and being carefree about entry/exit points changes results.

Is the final result "strategy" or "luck"?

I could investigate this if the data is provided to backtest the OP's results, and I'm curious why this can would not be provided in the sake of making the thread more actionable.
So no you didn’t read it and see it already has a massive amount of data showing the variation in out sample results for both specific assets and entry/exit points? By all means add another data point but it isn’t going to be new information of significance over what is already in there.
1. "The disadvantage of a binary strategy is that the strategy’s performance will sometimes end up hinging on the outcome of a small number of very impactful switches. In such cases, it will be easier for the strategy to succeed on luck alone–the luck of happening to switch at just the right time, just as the big “crash” event is starting to begin, when the switch itself was not an expression of any kind of reliable skill at avoiding the event."

I read something along the lines that the ultimate success or failure can be mostly luck for an individual case. The OP has made this even more luck based by using "whatever is in each account" and being carefree about entry/exit dates.

2. "In our case, we’re going to manage the risk in two ways: (1) by conducting out of sample testing on a very large, diverse quantity of independent data sets, reducing the odds that consistent outperformance could have been the result of luck, and (2) by conducting tweak tests on the strategy–manipulations of obviously irrelevant details in the strategy, to ensure that the details are not driving the results."

The second paragraph reads to me as a pretty good average result (many cases tested), even though some cases having high deviation (one or two wrong switches from paragraph 1), which seems to be somewhat the opposite of what the OP suggests. It seems like performance chasing at the risk of the entire portfolio. One wrong signal can mean severe under performance, and you only get one chance at retirement.

Paragraph 1 does not read like insurance at all.

Of course we could back test this if there was any interest in doing so.

Post Reply