Buy on Really Bad Days, Sell on Really Good Days?

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nedsaid
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by nedsaid » Fri Oct 06, 2017 12:18 pm

livesoft wrote:
Thu Oct 05, 2017 9:50 pm
Before the end of the year, I will start a thread titled
"Sell on Really Bad Days, Buy on Really Good Days?"
This could happen for folks who rebalance based on a calendar date. Or maybe one noticed over the weekend that they hit a trigger for too much equities, so they submit an order Sunday night to sell equities, but then on Monday the market goes down 5%.
I certainly have disciplines that I follow as an investor but I also allow for some flexibility. Perhaps it is a personality flaw but I have always had a distaste for inflexible and rigid investing disciplines. Markets are dynamic and I believe that to some degree our thinking has to be dynamic as well.

One would think that John Bogle, the inspiration behind this forum, is inflexible and doctrinaire. He says things like "stay the course, no matter what"; "age in bonds"; and "buy the whole haystack and not the needle." When you actually listen to his interviews, you find someone who has a flexible mind with the willingness to think outside the box. Big picture, his philosophy is remarkably consistent over time but he does say rather surprising things from time to time.

So when someone says things like "you must rebalance when you hit your rebalancing band, no matter what"; something in me just winces. My belief is that you can't make decisions in isolation but to consider your personal situation, the economy, and market conditions at the time. Pretty much, I reserve the right to override my investing disciplines when the situation calls for it.

So if I am wanting to rebalance from stocks to bonds and the market tanks that day, I will just wait until later when the markets have recovered. If that seems a departure from discipline, so be it. I don't know, that will drive some here crazy but that is just me.
A fool and his money are good for business.

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nedsaid
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by nedsaid » Fri Oct 06, 2017 12:41 pm

evancox10 wrote:
Thu Oct 05, 2017 10:18 pm
livesoft wrote:
Thu Oct 05, 2017 2:34 pm
nedsaid wrote:
Thu Oct 05, 2017 2:25 pm
I noticed today looked like another really good day. Did more rebalancing today in another account.
Watch out because the "definition" police will be along shortly to jump on you. After all, there is no way today was a "really good day" number-wise. It has been an up day for sure, but really good?

Also, it is highly unlikely that if one had not exceeded their asset allocation to equities that they would also not have exceeded their asset allocation to equities the next day if the equity market went down. That is, it is practically by definition that one will rebalance out of equities on a good day if one is actually paying attention to such things, right?

Or to put it another way, if one didn't need to rebalance OUT of equities yesterday, then if today is a Really Bad Day one should not need to rebalance OUT of equities today either.
Or your rebalancing strategy could just be to check your portfolio balances once a year, or or once every X months. No need to check markets every day for single percentage moves, what a pain in the rear...
My attitude towards rebalancing is rather relaxed and I agree with your opinion. For most people, rebalancing once a year is probably plenty. Younger investors may choose to let things go longer than that since young investors have longer time horizons and can be more aggressive. As a younger investor, I rarely rebalanced. I happily let my portfolio get more and more aggressive.

I have determined that I don't want my stock allocation to exceed 67% of my portfolio. We have had a strong bull market, even since July 2013, so I have been rebalancing in small waves to keep my allocation steady. I am 58 now and keeping my risk in check is really important to me. Were I still 38 years old, I probably wouldn't care.

My situation has changed and thus my approach has changed. I am not a young man anymore.
A fool and his money are good for business.

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TheTimeLord
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by TheTimeLord » Fri Oct 06, 2017 12:48 pm

nedsaid wrote:
Fri Oct 06, 2017 12:05 pm
TheTimeLord wrote:
Fri Oct 06, 2017 7:30 am
nedsaid wrote:
Thu Oct 05, 2017 11:00 pm
TheTimeLord wrote:
Thu Oct 05, 2017 9:43 pm
nedsaid wrote:
Thu Oct 05, 2017 5:09 pm
I rebalanced my portfolio over the last two days. I practice excellent personal hygiene. I even ran the dishes in the dishwasher yesterday. And on Mother's Day, I called my mother. Better than that, on Father's Day, I called my father. So I want to crow about my personal virtue. For a guy who had a rather relaxed view of rebalancing back in 2012 and early 2013 got religion after being scolded by fellow Bogleheads, I am not doing too bad. I guess I got that rebalancing religion but not enough of it. Didn't rebalance enough and I should have picked gooder days to do it. :wink:
I am finding it ironic that i haven't sold anything this week. Intended to sell some Fidelity Select Software & IT Svcs Port (FSCSX) (an insignificant guilty pleasure holding I picked up this year) today but never got around entering the order. It ended up 1.30%.
Well darn it, we will have to keep shaming until you rebalance. :wink: :wink:

You do bring up a good point, I suppose we could call it rebalancing regret or rebalancers' remorse. You rebalance your portfolio from stocks to bonds only to see the stock market zoom some more. One gives up some gains for (hopefully) de-risking the portfolio a bit.

All I know is the regret that I felt when things crashed in 2008-2009 that I had missed rebalancing opportunities. I let my stock allocation drift up to 72% and I was feeling pretty frisky and confident. That feeling was replaced with a pit in my stomach during the bear market. It wasn't fun. Pretty much, after the markets fully recovered, I promised myself that I wouldn't let my stock allocation run up again.
Maybe its my age or where I am financially, but over the last 5ish years risk management and sleeping well at night have taken on a greater importance than potential gains. I put my sell order in this morning with Fidelity so I don't lose track of time again. Luckily Fidelity let's you cancel mutual fund buy/sell orders if you desire so I don't mind putting them in and letting the day unfold.
I have read your many posts, you pretty much have achieved critical mass and I remember a whole thread where you were wavering between continuing to work and retiring. That is a difficult decision as is asset allocation and rebalancing in retirement or near retirement.

I was teasing you a bit, you don't have to rebalance on my recommendation. You have to take into consideration your own personal situation. Part of what I was talking about was all the comments that I got when I expressed a rather relaxed attitude towards rebalancing. But then again, I have a relaxed attitude towards a lot of things.
I am selling to simplify. I bought Fidelity Select Software & IT Svcs Port (FSCSX) on a lark and it worked out, now I feel like simplifying again. About 97% of my equity holding are split between Total Market and International ex-US with the majority in Total Market. Although I am keeping my VGT.
Run, You Clever Boy!

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TheTimeLord
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by TheTimeLord » Fri Oct 06, 2017 12:50 pm

nedsaid wrote:
Fri Oct 06, 2017 12:18 pm
livesoft wrote:
Thu Oct 05, 2017 9:50 pm
Before the end of the year, I will start a thread titled
"Sell on Really Bad Days, Buy on Really Good Days?"
This could happen for folks who rebalance based on a calendar date. Or maybe one noticed over the weekend that they hit a trigger for too much equities, so they submit an order Sunday night to sell equities, but then on Monday the market goes down 5%.
I certainly have disciplines that I follow as an investor but I also allow for some flexibility. Perhaps it is a personality flaw but I have always had a distaste for inflexible and rigid investing disciplines. Markets are dynamic and I believe that to some degree our thinking has to be dynamic as well.

One would think that John Bogle, the inspiration behind this forum, is inflexible and doctrinaire. He says things like "stay the course, no matter what"; "age in bonds"; and "buy the whole haystack and not the needle." When you actually listen to his interviews, you find someone who has a flexible mind with the willingness to think outside the box. Big picture, his philosophy is remarkably consistent over time but he does say rather surprising things from time to time.

So when someone says things like "you must rebalance when you hit your rebalancing band, no matter what"; something in me just winces. My belief is that you can't make decisions in isolation but to consider your personal situation, the economy, and market conditions at the time. Pretty much, I reserve the right to override my investing disciplines when the situation calls for it.

So if I am wanting to rebalance from stocks to bonds and the market tanks that day, I will just wait until later when the markets have recovered. If that seems a departure from discipline, so be it. I don't know, that will drive some here crazy but that is just me.
Even a little market timing if he feels things have got way out of whack to one side or the other.
Run, You Clever Boy!

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czeckers
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by czeckers » Fri Oct 06, 2017 4:25 pm

If been thinking about the premise of the original post for a couple of days.

I think the difference between taking advantage of really bad days and really good days is this:

It depends.

It depends on what phase you are in now. If you are in the accumulation phase, then your normal pattern is putting money into the market. On a really bad day, you get to take advantage of the resulting lower valuations by buying at a lower price. However, you are still doing what you normally do, which is buying.

Conversely, if you are living off of your portfolio, then your normal pattern is selling. To sell on a really good day is to take advantage of higher valuations to do what you would normally do which is to sell.

Where it gets tricky is when you want to take advantage of valuations that involve you doing the opposite of what you normally do. If you are in the accumulation phase and you sell, then you also have to find a point in the market to buy back in. Given that markets generally trend upwards, there is the possibility that you end up having to buy back in at a higher price than when you sold.

Conversely, if you are in the distribution phase, buying on a really bad day may seem like a good idea. However, if the market continues to trend downward, you may find your self having to sell at a lower price than when you bought.

Going opposite of your normal investing direction requires you to be right twice which can be tricky to do.
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TheTimeLord
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by TheTimeLord » Fri Oct 06, 2017 5:33 pm

TheTimeLord wrote:
Thu Oct 05, 2017 9:43 pm
nedsaid wrote:
Thu Oct 05, 2017 5:09 pm
I rebalanced my portfolio over the last two days. I practice excellent personal hygiene. I even ran the dishes in the dishwasher yesterday. And on Mother's Day, I called my mother. Better than that, on Father's Day, I called my father. So I want to crow about my personal virtue. For a guy who had a rather relaxed view of rebalancing back in 2012 and early 2013 got religion after being scolded by fellow Bogleheads, I am not doing too bad. I guess I got that rebalancing religion but not enough of it. Didn't rebalance enough and I should have picked gooder days to do it. :wink:
I am finding it ironic that i haven't sold anything this week. Intended to sell some Fidelity Select Software & IT Svcs Port (FSCSX) (an insignificant guilty pleasure holding I picked up this year) today but never got around entering the order. It ended up 1.30%.
All's well that end's well
Sold - Fidelity Select Software & IT Svcs Port (FSCSX) 162.30 +0.75 (+0.46%)
At close: 6:05PM EDT
Run, You Clever Boy!

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nedsaid
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by nedsaid » Fri Oct 06, 2017 6:53 pm

TheTimeLord wrote:
Fri Oct 06, 2017 5:33 pm
TheTimeLord wrote:
Thu Oct 05, 2017 9:43 pm
nedsaid wrote:
Thu Oct 05, 2017 5:09 pm
I rebalanced my portfolio over the last two days. I practice excellent personal hygiene. I even ran the dishes in the dishwasher yesterday. And on Mother's Day, I called my mother. Better than that, on Father's Day, I called my father. So I want to crow about my personal virtue. For a guy who had a rather relaxed view of rebalancing back in 2012 and early 2013 got religion after being scolded by fellow Bogleheads, I am not doing too bad. I guess I got that rebalancing religion but not enough of it. Didn't rebalance enough and I should have picked gooder days to do it. :wink:
I am finding it ironic that i haven't sold anything this week. Intended to sell some Fidelity Select Software & IT Svcs Port (FSCSX) (an insignificant guilty pleasure holding I picked up this year) today but never got around entering the order. It ended up 1.30%.
All's well that end's well
Sold - Fidelity Select Software & IT Svcs Port (FSCSX) 162.30 +0.75 (+0.46%)
At close: 6:05PM EDT
I am curious, did you put the proceeds into stocks, into bonds, or into cash?
A fool and his money are good for business.

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TheTimeLord
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by TheTimeLord » Fri Oct 06, 2017 7:48 pm

nedsaid wrote:
Fri Oct 06, 2017 6:53 pm
TheTimeLord wrote:
Fri Oct 06, 2017 5:33 pm
TheTimeLord wrote:
Thu Oct 05, 2017 9:43 pm
nedsaid wrote:
Thu Oct 05, 2017 5:09 pm
I rebalanced my portfolio over the last two days. I practice excellent personal hygiene. I even ran the dishes in the dishwasher yesterday. And on Mother's Day, I called my mother. Better than that, on Father's Day, I called my father. So I want to crow about my personal virtue. For a guy who had a rather relaxed view of rebalancing back in 2012 and early 2013 got religion after being scolded by fellow Bogleheads, I am not doing too bad. I guess I got that rebalancing religion but not enough of it. Didn't rebalance enough and I should have picked gooder days to do it. :wink:
I am finding it ironic that i haven't sold anything this week. Intended to sell some Fidelity Select Software & IT Svcs Port (FSCSX) (an insignificant guilty pleasure holding I picked up this year) today but never got around entering the order. It ended up 1.30%.
All's well that end's well
Sold - Fidelity Select Software & IT Svcs Port (FSCSX) 162.30 +0.75 (+0.46%)
At close: 6:05PM EDT
I am curious, did you put the proceeds into stocks, into bonds, or into cash?
I haven't yet but but my intention is to distribute it between Total Market and Total World ex-US after I do some calculations this weekend. A very small amount might end up in a 5 year cd ladder I am building.
Run, You Clever Boy!

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TheTimeLord
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by TheTimeLord » Sat Oct 07, 2017 11:34 am

TheTimeLord wrote:
Fri Oct 06, 2017 7:48 pm
nedsaid wrote:
Fri Oct 06, 2017 6:53 pm
TheTimeLord wrote:
Fri Oct 06, 2017 5:33 pm
TheTimeLord wrote:
Thu Oct 05, 2017 9:43 pm
nedsaid wrote:
Thu Oct 05, 2017 5:09 pm
I rebalanced my portfolio over the last two days. I practice excellent personal hygiene. I even ran the dishes in the dishwasher yesterday. And on Mother's Day, I called my mother. Better than that, on Father's Day, I called my father. So I want to crow about my personal virtue. For a guy who had a rather relaxed view of rebalancing back in 2012 and early 2013 got religion after being scolded by fellow Bogleheads, I am not doing too bad. I guess I got that rebalancing religion but not enough of it. Didn't rebalance enough and I should have picked gooder days to do it. :wink:
I am finding it ironic that i haven't sold anything this week. Intended to sell some Fidelity Select Software & IT Svcs Port (FSCSX) (an insignificant guilty pleasure holding I picked up this year) today but never got around entering the order. It ended up 1.30%.
All's well that end's well
Sold - Fidelity Select Software & IT Svcs Port (FSCSX) 162.30 +0.75 (+0.46%)
At close: 6:05PM EDT
I am curious, did you put the proceeds into stocks, into bonds, or into cash?
I haven't yet but but my intention is to distribute it between Total Market and Total World ex-US after I do some calculations this weekend. A very small amount might end up in a 5 year cd ladder I am building.
After running the numbers this morning, Portfolio Value - Fixed Income Floor - Equity = Assets to be allocated by AA, it turns out it is all headed to fixed income land. I knew I was a little equity heavy as of last week but not enough to spur me to act, but this week's rally was enough to push me beyond my threshold so if I hadn't sold Fidelity Select Software & IT Svcs Port (FSCSX) on Friday I would have been selling something on Monday anyway. I just love it when a loose interpretation of a plan accidentally works out.
Run, You Clever Boy!

lotusflower
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by lotusflower » Sun Oct 08, 2017 12:14 am

One thing that clouds the issue, and encourages this strategy, is that prices are tracked and searchable mostly on a daily basis. However the actual price movements and cycles occur across a range of time scales, including hourly, weekly, monthly. Engineers in the audience will be familiar with Fourier analysis, which converts a time-based signal (like stock prices) to an equivalent sum of sine waves of different frequencies. A noisy, random-walk signal like stock prices will have roughly equal strength at all frequencies.

If any frequency were stronger than any other, it would be easy for you (and trivial for the quants) to exploit this and time the markets, which is kind of a proof that all frequencies are roughly equal, since no one can really do this consistently. This is the technical basis behind the our BH maxim that "you can't time the market".

The logical conclusion of this is that timing the market according to any particular frequency is a mistake because the seemingly random price walks are equivalent to the sum of an infinite number of frequency cycles running at the same time. Paying attention to a particular frequency is not going to be an effective strategy. The problem is that the past and current data is available most readily at the daily frequency, and as humans we look for patterns in all data, so we pay the most attention to the daily patterns and try to game that. But since all frequencies are at work in the data at the same time, it doesn't usually work, as Messrs. Bogle, Malkiel, Larimore, et al. have told us over and over.

Any such strategy applied to daily fluctuations is mathematically no different to such a strategy applied to hourly, weekly, monthly, fortnightly, or quarterly price changes. In the long run there shouldn't be any difference. Looking at only one time frequency just because that is the one that you have the data for (daily) seems like a very poor way to analyze the market and an even poorer way to make decisions about the market.

avalpert
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by avalpert » Sun Oct 08, 2017 10:57 am

lotusflower wrote:
Sun Oct 08, 2017 12:14 am
One thing that clouds the issue, and encourages this strategy, is that prices are tracked and searchable mostly on a daily basis. However the actual price movements and cycles occur across a range of time scales, including hourly, weekly, monthly. Engineers in the audience will be familiar with Fourier analysis, which converts a time-based signal (like stock prices) to an equivalent sum of sine waves of different frequencies. A noisy, random-walk signal like stock prices will have roughly equal strength at all frequencies.

If any frequency were stronger than any other, it would be easy for you (and trivial for the quants) to exploit this and time the markets, which is kind of a proof that all frequencies are roughly equal, since no one can really do this consistently. This is the technical basis behind the our BH maxim that "you can't time the market".

The logical conclusion of this is that timing the market according to any particular frequency is a mistake because the seemingly random price walks are equivalent to the sum of an infinite number of frequency cycles running at the same time. Paying attention to a particular frequency is not going to be an effective strategy. The problem is that the past and current data is available most readily at the daily frequency, and as humans we look for patterns in all data, so we pay the most attention to the daily patterns and try to game that. But since all frequencies are at work in the data at the same time, it doesn't usually work, as Messrs. Bogle, Malkiel, Larimore, et al. have told us over and over.

Any such strategy applied to daily fluctuations is mathematically no different to such a strategy applied to hourly, weekly, monthly, fortnightly, or quarterly price changes. In the long run there shouldn't be any difference. Looking at only one time frequency just because that is the one that you have the data for (daily) seems like a very poor way to analyze the market and an even poorer way to make decisions about the market.
Well said.

livesoft
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by livesoft » Sun Oct 08, 2017 11:02 am

avalpert wrote:
Sun Oct 08, 2017 10:57 am
Well said.
I agree that no one should be using Fourier analysis and looking for periodic past patterns in the stock market in order to predict future periodic patterns in the stock market. I don't think that's what this thread is about either.
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avalpert
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by avalpert » Sun Oct 08, 2017 11:06 am

livesoft wrote:
Sun Oct 08, 2017 11:02 am
avalpert wrote:
Sun Oct 08, 2017 10:57 am
Well said.
I agree that no one should be using Fourier analysis and looking for periodic past patterns in the stock market in order to predict future periodic patterns in the stock market. I don't think that's what this thread is about either.
Right, this thread is about arbitrary, poorly specified, trading strategies that let you scratch the itch to act as though you are doing something sophisticated without the difficulty (or risk of being wrong) of actually testing the validity of the strategy.

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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by livesoft » Sun Oct 08, 2017 11:17 am

If you say so. I linked a thread where someone else (not me) tested a strategy. That's "peer review." You wouldn't believe any of my back tests anyways and I wouldn't expect you to. Anybody doing this kind of test had better be capable of doing their own backtesting or they shouldn't be doing this stuff.

Also, no one should expect any strategy to be 100% successful 100% of the time. After all, even "buy, hold, rebalance" loses money often enough.
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Leif
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by Leif » Sun Oct 08, 2017 11:19 am

Buy when you have the cash, sell when you need the cash. Balance per your IPS and avoid market timing.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

avalpert
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by avalpert » Sun Oct 08, 2017 11:28 am

livesoft wrote:
Sun Oct 08, 2017 11:17 am
If you say so. I linked a thread where someone else (not me) tested a strategy. That's "peer review." You wouldn't believe any of my back tests anyways and I wouldn't expect you to. Anybody doing this kind of test had better be capable of doing their own backtesting or they shouldn't be doing this stuff.
Yeah, and they found the strategy had no merit - and of course you still claimed in that thread that it wan't your strategy they were testing as you wouldn't diverge all the aspects of that to give yourself an out.
Also, no one should expect any strategy to be 100% successful 100% of the time. After all, even "buy, hold, rebalance" loses money often enough.
Another out so you can keep having your fun on the forum without being accountable for the veracity of the claims (or the impact it might have on others reading it who aren't as sophisticated or well off as you such that the outcomes don't really matter).

lotusflower
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by lotusflower » Sun Oct 08, 2017 12:50 pm

livesoft wrote:
Sun Oct 08, 2017 11:02 am
avalpert wrote:
Sun Oct 08, 2017 10:57 am
Well said.
I agree that no one should be using Fourier analysis and looking for periodic past patterns in the stock market in order to predict future periodic patterns in the stock market. I don't think that's what this thread is about either.
Well more specifically, I was trying to warn about the dangers of acting on price information on any specific time sampling (i.e. daily) because you are arbitrarily losing focus on all the other time frequencies that are in play. If I were going to do a quantitative strategy, I would base it on price levels sampled as often as you can get the data (like from Vanguard's alerts) rather than the daily close.

I still think it's not going to work that well due to the nature of a random walk and the efficient market hypothesis. Not that the market is always efficient but it's hard for us normals to differentiate between the inefficiencies and the noise.

livesoft
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by livesoft » Sun Oct 08, 2017 12:54 pm

avalpert wrote:
Sun Oct 08, 2017 11:28 am
Yeah, and they found the strategy had no merit -
That is a gross mischaracterization of all the strategies backtested in that thread.

I don't think anyone who doesn't pay attention to detail or has reading comprehension issues should be doing any of these things and they shouldn't be market timing with an eye to making lots of money. Heaven forbid! I think it will turn out terrible for them.
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avalpert
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by avalpert » Sun Oct 08, 2017 1:28 pm

livesoft wrote:
Sun Oct 08, 2017 12:54 pm
avalpert wrote:
Sun Oct 08, 2017 11:28 am
Yeah, and they found the strategy had no merit -
That is a gross mischaracterization of all the strategies backtested in that thread.

I don't think anyone who doesn't pay attention to detail or has reading comprehension issues should be doing any of these things and they shouldn't be market timing with an eye to making lots of money. Heaven forbid! I think it will turn out terrible for them.
Not a gross mischarecterization at all and I'd once again recommend RodC's last paragraph in the last post as a good summation.

livesoft
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Re: Buy on Really Bad Days, Sell on Really Good Days?

Post by livesoft » Tue Oct 10, 2017 1:12 pm

livesoft wrote:
Tue Oct 03, 2017 12:02 pm
Another question to answer is: When should one exchange DGS back into BND? I will give a partial answer: One should probably wait until at least next week when the Korean Stock Exchange opens again after a week-long holiday.
And today is the first day since September for the Korean stock exchange to be open. DGS has had a nice run.
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