My trend following strategy and experience

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Forester
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Re: My trend following strategy and experience

Post by Forester » Mon Oct 14, 2019 12:31 pm

IMHO if doing a simple strategy, use a low/min vol index. Less junky companies = better signal, less troughs & less peaks = less whipsaws. And even on a false signal you're selling higher & buying lower.

jayhawkerbeef
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Re: My trend following strategy and experience

Post by jayhawkerbeef » Mon Oct 14, 2019 1:40 pm

BlueEars wrote:
Mon Oct 14, 2019 11:45 am
jayhawkerbeef wrote:
Mon Oct 14, 2019 11:37 am
My strategy was just a simple 3mo dual momentum trading month end price, hate seeing/experiencing how terribly I’ve lagged the S&P over the last 4 years since I started.

Know that’s not long enough to follow any strategy. However, I did best the S&p in 2018, -1% to -4.5%. But like you I know I will hate drawdowns, and will not just sit and do nothing. And this year, S&P up ~20% and I’m 4%. Really really second guessing timing thing. Haha
I suspect your strategy is suffering because of the 3 month timing selection. I would imagine this is too short a period. How does 3 month work on a back test over a long time period? One period to look at would be the 1990's when few trend following methods beat buy-hold.
Actually checked that on PV and it would have been worse the longer the holding period; below is based upon a 12mo.

Year Inflation Timing VG 500 Timing Balance VG 500 Balance
2012 1.74% 19.07% 15.82% $11,907 $11,582
2013 1.50% 21.22% 32.18% $14,433 $15,309
2014 0.76% 9.64% 13.51% $15,825 $17,377
2015 0.73% -12.71% 1.25% $13,813 $17,594
2016 2.07% -2.13% 11.82% $13,519 $19,673
2017 2.11% 25.81% 21.67% $17,008 $23,936
2018 1.91% -0.22% -4.52% $16,971 $22,853
2019 2.12% 8.12% 20.44% $18,349 $27,525

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Mon Oct 14, 2019 3:20 pm

Forester wrote:
Mon Oct 14, 2019 12:31 pm
IMHO if doing a simple strategy, use a low/min vol index. Less junky companies = better signal, less troughs & less peaks = less whipsaws. And even on a false signal you're selling higher & buying lower.
I think that a target volatility approach using broad market indices and bonds, preferably long-term bonds, is a fine approach. It's definitely simpler than the one I'm using 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

TheDDC
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Re: My trend following strategy and experience

Post by TheDDC » Tue Oct 15, 2019 10:13 pm

willthrill81 wrote:
Mon Oct 14, 2019 3:20 pm
Forester wrote:
Mon Oct 14, 2019 12:31 pm
IMHO if doing a simple strategy, use a low/min vol index. Less junky companies = better signal, less troughs & less peaks = less whipsaws. And even on a false signal you're selling higher & buying lower.
I think that a target volatility approach using broad market indices and bonds, preferably long-term bonds, is a fine approach. It's definitely simpler than the one I'm using here.
Will- Would you mind "thrilling" us by updating your signature with a "buy into stocks/move to bonds" signal? Maybe "Blue horseshoe loves stocks" would be appropriate. Seriously, though, I would be interested in tracking your trend following strategy and correlating with what I might notice using [what I think is] your method. Understanding how quickly you react to a change in the criteria (or one of two when buying back in) would be helpful to all of us I think.

-TheDDC
Refreshingly, a double barrel shotgun blast of truth...

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Wed Oct 16, 2019 9:47 am

TheDDC wrote:
Tue Oct 15, 2019 10:13 pm
willthrill81 wrote:
Mon Oct 14, 2019 3:20 pm
Forester wrote:
Mon Oct 14, 2019 12:31 pm
IMHO if doing a simple strategy, use a low/min vol index. Less junky companies = better signal, less troughs & less peaks = less whipsaws. And even on a false signal you're selling higher & buying lower.
I think that a target volatility approach using broad market indices and bonds, preferably long-term bonds, is a fine approach. It's definitely simpler than the one I'm using here.
Will- Would you mind "thrilling" us by updating your signature with a "buy into stocks/move to bonds" signal? Maybe "Blue horseshoe loves stocks" would be appropriate. Seriously, though, I would be interested in tracking your trend following strategy and correlating with what I might notice using [what I think is] your method. Understanding how quickly you react to a change in the criteria (or one of two when buying back in) would be helpful to all of us I think.

-TheDDC
I am updating when I move from stocks into bonds in this thread. I am not updating every time I make a change from something like LCG to MCG, but I will provide a summary report at the end of each year. Right now, I'm still mostly in LCG.
“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

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Wed Oct 16, 2019 11:33 am

TheDDC wrote:
Tue Oct 15, 2019 10:13 pm
Will- Would you mind "thrilling" us by updating your signature with a "buy into stocks/move to bonds" signal? Maybe "Blue horseshoe loves stocks" would be appropriate. Seriously, though, I would be interested in tracking your trend following strategy and correlating with what I might notice using [what I think is] your method. Understanding how quickly you react to a change in the criteria (or one of two when buying back in) would be helpful to all of us I think.

-TheDDC
I don't think you have the information required to track his trend following strategy.

I don't think there is one "buy into stocks/move to bonds" signal. Instead, there is one such signal per fiduciary, I think.

If you had a list of the investments for each fiduciary then I think you could track and model his trend following strategy. Specifically, the investments that willthrill81 is willing to invest in at each fiduciary as part of his strategy. That might be enough unless some of the investments are such that extensive public information is not available.

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Wed Oct 16, 2019 12:08 pm

tadamsmar wrote:
Wed Oct 16, 2019 11:33 am
TheDDC wrote:
Tue Oct 15, 2019 10:13 pm
Will- Would you mind "thrilling" us by updating your signature with a "buy into stocks/move to bonds" signal? Maybe "Blue horseshoe loves stocks" would be appropriate. Seriously, though, I would be interested in tracking your trend following strategy and correlating with what I might notice using [what I think is] your method. Understanding how quickly you react to a change in the criteria (or one of two when buying back in) would be helpful to all of us I think.

-TheDDC
I don't think you have the information required to track his trend following strategy.

I don't think there is one "buy into stocks/move to bonds" signal. Instead, there is one such signal per fiduciary, I think.

If you had a list of the investments for each fiduciary then I think you could track and model his trend following strategy. Specifically, the investments that willthrill81 is willing to invest in at each fiduciary as part of his strategy. That might be enough unless some of the investments are such that extensive public information is not available.
That's correct. My investment choices vary tremendously from one account to the next. I have far more options in our IRAs than in my 457 plan (only six there). But most of my performance could be tracked with broad market indices since the stock/bond allocation has a much greater impact on one's returns than one's choice of stock class.
“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

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Forester
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Re: My trend following strategy and experience

Post by Forester » Fri Oct 18, 2019 3:18 pm

"Momentum is a data-mined anomaly" - article by a guy who dislikes trend following. He cites the performance of trend following performed on EEM, the volatile emerging markets index.

https://www.priceactionlab.com/Blog/20 ... et-timing/

Lee_WSP
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Re: My trend following strategy and experience

Post by Lee_WSP » Fri Oct 18, 2019 3:47 pm

Forester wrote:
Fri Oct 18, 2019 3:18 pm
"Momentum is a data-mined anomaly" - article by a guy who dislikes trend following. He cites the performance of trend following performed on EEM, the volatile emerging markets index.

https://www.priceactionlab.com/Blog/20 ... et-timing/
It may well be data mined, but to debunk it, you need to compare it to a fund with the same volatility. EEM is extraordinarily volatile.

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BlueEars
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Re: My trend following strategy and experience

Post by BlueEars » Fri Oct 18, 2019 5:10 pm

Yes for algorithms I've tried, having a mildly moving asset is better then the volatile ones. Haven't figured out how to do EEM or gold or sector funds.

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Mon Oct 21, 2019 7:45 am

Lee_WSP wrote:
Fri Oct 18, 2019 3:47 pm
Forester wrote:
Fri Oct 18, 2019 3:18 pm
"Momentum is a data-mined anomaly" - article by a guy who dislikes trend following. He cites the performance of trend following performed on EEM, the volatile emerging markets index.

https://www.priceactionlab.com/Blog/20 ... et-timing/
It may well be data mined, but to debunk it, you need to compare it to a fund with the same volatility. EEM is extraordinarily volatile.
Not sure that pure momentum strategies need to be debunked. Did they have credence in the first place?

Asness' dissertation apparently gave some respectability to a combination of value plus momentum, but that is not what we are talking about on this thread.

Tdubs
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Re: My trend following strategy and experience

Post by Tdubs » Mon Oct 21, 2019 7:57 am

willthrill81 wrote:
Wed Oct 16, 2019 9:47 am
TheDDC wrote:
Tue Oct 15, 2019 10:13 pm
willthrill81 wrote:
Mon Oct 14, 2019 3:20 pm
Forester wrote:
Mon Oct 14, 2019 12:31 pm
IMHO if doing a simple strategy, use a low/min vol index. Less junky companies = better signal, less troughs & less peaks = less whipsaws. And even on a false signal you're selling higher & buying lower.
I think that a target volatility approach using broad market indices and bonds, preferably long-term bonds, is a fine approach. It's definitely simpler than the one I'm using here.
Will- Would you mind "thrilling" us by updating your signature with a "buy into stocks/move to bonds" signal? Maybe "Blue horseshoe loves stocks" would be appropriate. Seriously, though, I would be interested in tracking your trend following strategy and correlating with what I might notice using [what I think is] your method. Understanding how quickly you react to a change in the criteria (or one of two when buying back in) would be helpful to all of us I think.

-TheDDC
I am updating when I move from stocks into bonds in this thread. I am not updating every time I make a change from something like LCG to MCG, but I will provide a summary report at the end of each year. Right now, I'm still mostly in LCG.
Sorry for wandering into this thread so late. Are your updates buried among the 20 pages of discussion? Or, is there one place to find it all the moves?

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Mon Oct 21, 2019 8:00 am

Tdubs wrote:
Mon Oct 21, 2019 7:57 am

Sorry for wandering into this thread so late. Are your updates buried among the 20 pages of discussion? Or, is there one place to find it all the moves?
Updates are at the bottom of the original post of this thread.

Tdubs
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Re: My trend following strategy and experience

Post by Tdubs » Mon Oct 21, 2019 8:02 am

tadamsmar wrote:
Mon Oct 21, 2019 8:00 am
Tdubs wrote:
Mon Oct 21, 2019 7:57 am

Sorry for wandering into this thread so late. Are your updates buried among the 20 pages of discussion? Or, is there one place to find it all the moves?
Updates are at the bottom of the original post of this thread.
Thanks!

Galton's Ghost
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Re: My trend following strategy and experience

Post by Galton's Ghost » Mon Oct 21, 2019 7:50 pm

Will,

Do you still use a single look-back period? The research that I've seen and that I've done myself seems to indicate that multiple look-backs are better in terms of eliminating specification risk, i.e. bad (or good) luck.

Also, have you ever checked out Paul Novell's work. He does something very similar but with multiple economic indicators.

Best,
Galton

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Re: My trend following strategy and experience

Post by willthrill81 » Mon Oct 21, 2019 8:52 pm

Galton's Ghost wrote:
Mon Oct 21, 2019 7:50 pm
Will,

Do you still use a single look-back period? The research that I've seen and that I've done myself seems to indicate that multiple look-backs are better in terms of eliminating specification risk, i.e. bad (or good) luck.

Also, have you ever checked out Paul Novell's work. He does something very similar but with multiple economic indicators.

Best,
Galton
Yes, I use a 12 month look-back for the UER and a 7 month for the assets. From what I've seen, the long-term results of most look-back periods ranging from 3 to 12 months (or longer) are pretty similar, so the complications introduced by multiple look-back periods are not worthwhile to me.

No, I'm not familiar with Paul Novell.
“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

Always passive
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Re: My trend following strategy and experience

Post by Always passive » Tue Oct 22, 2019 8:24 am

Question: why do you use moving average and not momentum on 7 month (or other period) return, like the dual momentum strategy

Galton's Ghost
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Re: My trend following strategy and experience

Post by Galton's Ghost » Tue Oct 22, 2019 10:28 am

willthrill81 wrote:
Mon Oct 21, 2019 8:52 pm
Galton's Ghost wrote:
Mon Oct 21, 2019 7:50 pm
Will,

Do you still use a single look-back period? The research that I've seen and that I've done myself seems to indicate that multiple look-backs are better in terms of eliminating specification risk, i.e. bad (or good) luck.

Also, have you ever checked out Paul Novell's work. He does something very similar but with multiple economic indicators.

Best,
Galton
Yes, I use a 12 month look-back for the UER and a 7 month for the assets. From what I've seen, the long-term results of most look-back periods ranging from 3 to 12 months (or longer) are pretty similar, so the complications introduced by multiple look-back periods are not worthwhile to me.

No, I'm not familiar with Paul Novell.
Regarding lookbacks, I was talking about multiple look-backs for the assets, i.e. instead of using just one - the 7-month in this case - use several - maybe 3,6,9 and 12. I realize that over long periods of time (20 or 30 years), they all give similar results; however, over shorter periods of time, they can give dramatically different results, which can be hard to swallow. Using multiple look-backs helps you avoid luck - good and bad - leaving you with a more pure access to trend. As either the ReSolve guys or Corey Hoffstein say, " We'd rather be generally right, than specifically wrong."

Regarding Paul Novell, he has written about this strategy quite a bit over at Investing for a Living. He uses several economic indicators instead of just unemployment. If any go "red," he flips on the trend screen. Again, very similar to you, he just adds economic indicators to have a bit more breadth. He's written quite a bit about this strategy so I figured you might want to check him out. (If it matters, I'm not associated with him in any way, other than occasionally having had an email chat about this strategy.)

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Re: My trend following strategy and experience

Post by willthrill81 » Tue Oct 22, 2019 10:49 am

Galton's Ghost wrote:
Tue Oct 22, 2019 10:28 am
willthrill81 wrote:
Mon Oct 21, 2019 8:52 pm
Galton's Ghost wrote:
Mon Oct 21, 2019 7:50 pm
Will,

Do you still use a single look-back period? The research that I've seen and that I've done myself seems to indicate that multiple look-backs are better in terms of eliminating specification risk, i.e. bad (or good) luck.

Also, have you ever checked out Paul Novell's work. He does something very similar but with multiple economic indicators.

Best,
Galton
Yes, I use a 12 month look-back for the UER and a 7 month for the assets. From what I've seen, the long-term results of most look-back periods ranging from 3 to 12 months (or longer) are pretty similar, so the complications introduced by multiple look-back periods are not worthwhile to me.

No, I'm not familiar with Paul Novell.
Regarding lookbacks, I was talking about multiple look-backs for the assets, i.e. instead of using just one - the 7-month in this case - use several - maybe 3,6,9 and 12. I realize that over long periods of time (20 or 30 years), they all give similar results; however, over shorter periods of time, they can give dramatically different results, which can be hard to swallow. Using multiple look-backs helps you avoid luck - good and bad - leaving you with a more pure access to trend. As either the ReSolve guys or Corey Hoffstein say, " We'd rather be generally right, than specifically wrong."

Regarding Paul Novell, he has written about this strategy quite a bit over at Investing for a Living. He uses several economic indicators instead of just unemployment. If any go "red," he flips on the trend screen. Again, very similar to you, he just adds economic indicators to have a bit more breadth. He's written quite a bit about this strategy so I figured you might want to check him out. (If it matters, I'm not associated with him in any way, other than occasionally having had an email chat about this strategy.)
When I was forming my strategy, I thought about using multiple look-back periods, but the added complexity of implementation didn't appeal to me, and I'm not that concerned with the short-term differences stemming from the use of one vs. several.

There are other economic indicators or indices that could certainly be used as well. The Conference Board LEI has had a very good track record, as has the PMI.
“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

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Tue Oct 22, 2019 12:08 pm

Always passive wrote:
Tue Oct 22, 2019 8:24 am
Question: why do you use moving average and not momentum on 7 month (or other period) return, like the dual momentum strategy
Willthill81 does not use moving average he uses relative strength. (He uses moving average only for unemployment)

As far as I can tell, each month for each fiduciary, he chooses the asset with the highest relative strength from the set of equity assets available at that fiduciary. (Or maybe he chooses from a subset, not the full set, not sure). Then he invests in that asset if and only if it has a higher relative strength than does VBMFX or unemployment is not above it's 12-month moving average. Otherwise, he invests in VBMFX or something else. See here:

viewtopic.php?f=10&t=270035&p=4560031&h ... h#p4560031

Interestingly, he implies that he does not necessarily move to VBMFX even if it is available, and I don't think he has ever explained this. But it may be that in practice he does use VBMFX when it is available at any of his limited list of fiduciaries.

If you go here, and you click on Methodology then you will see a discussion of what "relative strength" is:

https://www.portfoliovisualizer.com/faq

I am assuming he does not use any of the bells and whistles mentioned there.

But they don't provide an explicit formula. I think it is just (E-B)/B where B if the beginning price and E is the end price of the 7-month period.

The title of this thread is "My trend following strategy and experience" but (unless I am mistaken) after 20 pages his strategy is still somewhat vaguely specified.

Edit: added the stipulation about unemployment
Last edited by tadamsmar on Tue Oct 22, 2019 4:04 pm, edited 2 times in total.

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Tue Oct 22, 2019 12:16 pm

tadamsmar wrote:
Tue Oct 22, 2019 12:08 pm
Interestingly, he implies that he does not necessarily move to VBMFX even if it is available, and I don't think he has ever explained this. But it may be that in practice he does use VBMFX when it is available at any of his limited list of fiduciaries.
VBMFX is only available in our IRAs. And recall that per my strategy, I can only move into any type of fixed income if the UER is above its 12 month moving average.
tadamsmar wrote:
Tue Oct 22, 2019 12:08 pm
But they don't provide an explicit formula. I think it is just (E-B)/B where B if the beginning price and E is the end price of the 7-month period.
Yes, that's correct.
“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

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Re: My trend following strategy and experience

Post by Always passive » Sat Oct 26, 2019 1:13 am

Hi WILLTHRILL81:
To ask my question, let me quote from your original post
"this system calls me to own stocks unless both (1) the U.S. unemployment rate (UER) is above its 12 month moving average and (2) all available stock indexes have had lower performance than that of bond indexes over the prior 7 months"
My question is the following: US unemployment is a potential indicator of recession in the US. However, in your list of options, you include non US stock indexes. Does that mean that you believe that a US recession always impacts negatively foreign equities? Is it not possible that foreign equities may do well in a US recession?
Erwin

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Re: My trend following strategy and experience

Post by Busdrvr » Thu Oct 31, 2019 8:47 am

I see Sept. UE rate @ bls is lowest number on chart at 3.5. Which is nice!

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Re: My trend following strategy and experience

Post by willthrill81 » Thu Oct 31, 2019 9:19 am

Always passive wrote:
Sat Oct 26, 2019 1:13 am
My question is the following: US unemployment is a potential indicator of recession in the US. However, in your list of options, you include non US stock indexes. Does that mean that you believe that a US recession always impacts negatively foreign equities? Is it not possible that foreign equities may do well in a US recession?
There is a quote from the first article I linked to that directly addresses your question.
If we use U.S. economic data as a filter to time foreign securities, the performance turns out to be excellent. But if we use economic data from the foreign countries themselves, then the strategy ends up underperforming a simple unfiltered trend-following strategy. Among other things, this tells us something that we could probably have already deduced from observation: the health of our economy and our equity markets is more relevant to the performance of foreign equity markets than the health of their own economies. This is especially true with respect to large downward moves–the well-known global “crises” that drag all markets down in unison, and that make trend-following a historically profitable strategy.
https://www.philosophicaleconomics.com/2016/02/uetrend/
“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

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BlueEars
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Re: My trend following strategy and experience

Post by BlueEars » Thu Oct 31, 2019 10:24 am

If we look at Vanguard Total World index we see that North America is 58% of the total. https://investor.vanguard.com/mutual-fu ... olio/vtwax

I think as long as this persists the use of US stats to time broad foreign funds will be good.

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