My trend following strategy and experience

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Thu Jul 11, 2019 9:32 am

BlueEars wrote:
Wed Jul 10, 2019 10:18 am
One testing technique for a backtested strategy is to take the strategy for the longest period that data exists and to split it into two period. Set parameters to optimize the first period. Those are the ones you would have chosen at the end of that period using the results for that period alone. Then look at those parameter's results for the full period. This is often referred to as out-of-sample backtesting.

So perhaps there is 60 years of available data. You take the first 30 years and set any parameters you are using to the best result. Then you use those parameters for the full period of 60 years. Quite often the 60 years results using parameters optimized for the first 30 years will then be not quite as good as the optimization parameters using the full 60 years.

Going forward I think you still want to keep the optimized parameters for the full period of 60 years. But then you are informed in a rough way of how sensitive your results might be going forward. If the better results compared to buy-hold disappear when doing this half period and full period testing, you need to go back to the drawing boards.

Just some thoughts.
Very aptly put. Sensitivity analyses such as these are very useful in many areas of inquiry.
“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 » Tue Jul 16, 2019 11:29 am

New article on the method here posted on Allocate Smartly

https://allocatesmartly.com/philosophic ... ing-redux/

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Re: My trend following strategy and experience

Post by willthrill81 » Tue Jul 16, 2019 12:06 pm

Forester wrote:
Tue Jul 16, 2019 11:29 am
New article on the method here posted on Allocate Smartly

https://allocatesmartly.com/philosophic ... ing-redux/
Thanks for the link. They agree with me regarding the main strength of the strategy.
Like most trend-following strategies, the strength of GTT hasn’t been in generating outsized returns; it has been in maintaining returns while managing losses.
emphasis in original

I also find it interesting that they make the following criticism, which the second part of my strategy directly addresses (i.e. rotating into the top performing stock asset class over the prior 7 months).
Where we find GTT lacking is that it’s not really a “total” portfolio solution – it’s a single asset class solution. It would be great to see these same concepts applied to other assets in order to build a more robust, diversified portfolio.
“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 » Tue Jul 16, 2019 3:00 pm

willthrill81 wrote:
Tue Jul 16, 2019 12:06 pm
Forester wrote:
Tue Jul 16, 2019 11:29 am
New article on the method here posted on Allocate Smartly

https://allocatesmartly.com/philosophic ... ing-redux/
Thanks for the link. They agree with me regarding the main strength of the strategy.
Like most trend-following strategies, the strength of GTT hasn’t been in generating outsized returns; it has been in maintaining returns while managing losses.
emphasis in original

I also find it interesting that they make the following criticism, which the second part of my strategy directly addresses (i.e. rotating into the top performing stock asset class over the prior 7 months).
Where we find GTT lacking is that it’s not really a “total” portfolio solution – it’s a single asset class solution. It would be great to see these same concepts applied to other assets in order to build a more robust, diversified portfolio.
If I recall you do not limit yourself to the S&P 500, but after checking for recession, you select among different indices, including foreign ones. The question is whether one can assume that a US recession will impact the entire investing world?

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Re: My trend following strategy and experience

Post by willthrill81 » Tue Jul 16, 2019 3:12 pm

Always passive wrote:
Tue Jul 16, 2019 3:00 pm
willthrill81 wrote:
Tue Jul 16, 2019 12:06 pm
Forester wrote:
Tue Jul 16, 2019 11:29 am
New article on the method here posted on Allocate Smartly

https://allocatesmartly.com/philosophic ... ing-redux/
Thanks for the link. They agree with me regarding the main strength of the strategy.
Like most trend-following strategies, the strength of GTT hasn’t been in generating outsized returns; it has been in maintaining returns while managing losses.
emphasis in original

I also find it interesting that they make the following criticism, which the second part of my strategy directly addresses (i.e. rotating into the top performing stock asset class over the prior 7 months).
Where we find GTT lacking is that it’s not really a “total” portfolio solution – it’s a single asset class solution. It would be great to see these same concepts applied to other assets in order to build a more robust, diversified portfolio.
If I recall you do not limit yourself to the S&P 500, but after checking for recession, you select among different indices, including foreign ones. The question is whether one can assume that a US recession will impact the entire investing world?
The links in the OP include an analysis of ex-U.S. equities. What might be surprising to some is that, historically, the U.S. unemployment rate has had far more to do with other nations' stock performance than their nation's economic status.
“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 BlueEars » Tue Jul 16, 2019 7:25 pm

willthrill81 wrote:
Tue Jul 16, 2019 3:12 pm
...
The links in the OP include an analysis of ex-U.S. equities. What might be surprising to some is that, historically, the U.S. unemployment rate has had far more to do with other nations' stock performance than their nation's economic status.
I would agree from what I have seen.

Some years ago I modified a trend following system as if I were a Japanese using the SP500 as a trend indicator on whether to stay in stocks or go to Treasuries. Also it switched between the EAFE and large US value or large US growth up to 1983 and then the NIkkei (instead of EAFE) was used from 1984 to 2012. This was due to the limits I had on data availability.

The results were converted to Yen too. The CAGR = 15.1% was excellent for such a far sighted :wink: Japanese investor. It did result in a fairly high 2.2 trades per year. I was using this as an out of sample test of the algorithm I was studying.

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Re: My trend following strategy and experience

Post by Forester » Fri Aug 16, 2019 10:46 am

The present 'under-performance' of equity index trend following is not unusual - the double home runs of the 2000s are the outlier; https://movement.capital/getting-real-a ... ng-returns

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Re: My trend following strategy and experience

Post by Barsoom » Fri Aug 16, 2019 11:26 am

Barsoom wrote:
Wed Jun 19, 2019 10:36 am
willthrill81 wrote:
Thu Jan 17, 2019 7:16 pm
I use a nearly identical version of that advocated by the Philosophical Economist and detailed here. (He also provides an excellent overview to why trend following works here.)
When I first came across these articles about six months ago, I was interested because I was going to retire later this year and was concerned about retiring into a down market. I wasn't so much interested in timing the market per se, as I was about getting into the market in the first place with a significant lump sum pension distribution. Secondarily, I had a large position in Megacorp stock that has served me well but would need to be diversified as well. So, for me it was about holding onto my cash, and timing when to first enter the market if storms were signaling on the horizon. Go now or wait.

To that end, I began tracking the trigger metrics listed in the linked articles, as well as a few more that I came across from other publications. For reference and discussion purposes, I thought I'd share the current values of these triggers. Most metrics are sourced from FRED.

S&P 500
I am using a 9-month moving average as a proxy for a 200 day moving average. The trigger is when the S&P 500 moves below the 9MMA AND other triggers fire. In May, the S&P 500 was approximately 5.65% above the 9MMA.

Unemployment
According to the articles, the unemployment signal contributed 1.4% return over the B&H strategy. The trigger is when the unemployment rate moves above its trailing twelve month average. In May, the unemployment rate was 5.68% below the TTM average. This trigger fired in January 2019.

YoY Job Growth
This trigger contributed 1.2% return over B&H. It fires when the YoY Job Growth % is negative. In May, YoY job growth was 0.97%.

YoY Industrial Production Growth
This trigger contributed 1.1% return over B&H. It fires when YoY Industrial Production Growth is negative. In May, YoY Industrial Production Growth was 2.05%.

YoY Retail Sales Growth
This trigger contributed 0.9% return over B&H. It fires when YoY Retail Sales Growth is negative. In May, YoY Retail Sales Growth 1.33%. This trigger fired in December 2018.

YoY Personal Income Growth
This trigger contributed 0.9% return over B&H. It fires when YoY Personal Income Growth is less than 3%. In April, YoY Personal Income Growth was 2.38%. This trigger has been firing every month since 2016, and I am treating it as noise.

YoY New Housing Starts
This trigger contributed 0.8% return over B&H. It fires when YoY New Housing Starts is below -10%. In May, YoY New Housing Starts was -5.3%. This trigger fired in February and March 2019.

In no intentional order, below are the additional interesting "early warning signs" I began tracking after reading other articles on recession leading indicators. These were not correlated to B&H strategy returns.

YoY Small Business Hiring Sentiment
This metric supposedly leads unemployment by about four months. It is a survey index measure, so YoY percent change is used, suggesting that a negative result indicates an upcoming hiring downturn. In May, the result was 16.7%. It was negative in January, February, and March 2019 due to stronger sentiment over the same months in 2018.

New Jobless Claims and Growth from Lowest Point
This is a 4WMA of weekly new jobless claims. This is supposedly a leading indicator of unemployment when it is above 300K. In June, it was 215,000 and holding fairly steady.

Growth in New Jobless Claims is a supposed leading indicator of unemployment when it reaches 69K over its lowest point. The lowest claims in the past two years was 212,500, which occurred in September 2018 and again in April 2019. It is currently 2,500 above the two-year low point.

"Temp" Workers Employment
This tracks the YoY change in employment of workers in temporary job positions. The idea is that temporary workers are the first to be laid off in a downturn, sort of the proverbial canary in the coal mine. In May, this metric was 1.48% and trending down.

"Breadwinner" Employment
This is a YoY change in employment for people between 25-54 years old. In May, this metric was 0.54% and trending down.

Industrial Capacity Utilization
Along with Industrial Production, this metric indicates how full the industrial pipeline is. It is a supposedly leading indicator of recession when it is above 80%, suggesting an overheating economy. In May, Industrial Capacity Utilization was 78.07% and holding fairly steady. In the past two years, it peaked at 79.57% in November 2018.

PMI
This is a survey of manufacturing Purchasing Managers sentiment, based on expectations of new purchase orders for manufacturing supplies, raw materials, etc. Scores above 50 indicate optimism, below 50 indicates pessimism in future ordering.

In essence, this is a leading indicator of the manufacturing supply chain. Supposedly, Taiwan PMI is a six-month leading indicator of USA PMI, and Singapore PMI is a four-month leading indicator as these countries are at the front-end of the global supply chain. When these countries turn pessimistic, it suggests that USA manufacturing will show a downturn in four to six months, with Europe somewhere in between.

Here are the June PMI results for key indicator countries:
  • China (#2 economy) - 50.2 (50.2 six months ago)
  • Japan (#3 economy) - 49.8 (52.2 six months ago)
  • Taiwan - 48.4 (48.4 six months ago)
  • South Korea - 48.4 (48.6 six months ago)
  • Singapore - 49.9 (51.5 six months ago)
  • Germany (#4 economy) - 44.3 (51.8 six months ago)
  • France - 50.6 (50.8 six months ago)
  • Italy - 49.7 (48.6 six months ago)
  • Eurozone (#2 economy) - 47.7 (51.8 six months ago)
  • USA (#1 economy) - 50.5 (58.8 six months ago)
Inflation
Inflation has been fairly steady. YoY CPI in May was 1.8%, down from a high of 2.95% in July 2018. Core Inflation (ex food and energy) is 1.99%, down from 2.35% last July.

Yield Curve
An inverted yield curve sustained for three months supposedly leads a recession by 9-18 months. The 1-month and 3-month yield curves have been inverted for May and June.

Bottom Line
Take this FWIW...

The linked articles' leading indicators are currently NOT signaling a retreat. Jobless claims are low, but temps and breadwinners are close to contracting. Manufacturing is starting to slow down but is still close to peak capacity. Asia-Pac manufacturing sentiment is pessimistic and Europe is already in decline. This hasn't reached the United States yet, but USA PMI is borderline.

-B
Update for July 2019...

S&P 500
I am using a 9-month moving average as a proxy for a 200 day moving average. The trigger is when the S&P 500 moves below the 9MMA AND other triggers fire. In July, the S&P 500 was approximately 7.52% above the 9MMA. Today, it is 2.83% above the 9MMA.

Unemployment
According to the articles, the unemployment signal contributed 1.4% return over the B&H strategy. The trigger is when the unemployment rate moves above its trailing twelve month average. In July, the unemployment rate was 1.99% below the TTM average (trending towards trigger). This trigger fired in January 2019.

YoY Job Growth
This trigger contributed 1.2% return over B&H. It fires when the YoY Job Growth % is negative. In July, YoY job growth was 0.80% (trending towards trigger).

YoY Industrial Production Growth
This trigger contributed 1.1% return over B&H. It fires when YoY Industrial Production Growth is negative. In July, YoY Industrial Production Growth was 0.48% (trending towards trigger).

YoY Retail Sales Growth
This trigger contributed 0.9% return over B&H. It fires when YoY Retail Sales Growth is negative. In July, YoY Retail Sales Growth 1.60% (trending away from trigger/steady). This trigger fired in December 2018.

YoY Personal Income Growth
This trigger contributed 0.9% return over B&H. It fires when YoY Personal Income Growth is less than 3%. In June, YoY Personal Income Growth was 3.54% (trending away from trigger).

YoY New Housing Starts
This trigger contributed 0.8% return over B&H. It fires when YoY New Housing Starts is below -10%. In June, YoY New Housing Starts was 5.63%. This trigger is volitile, and fired in February and March 2019.

In no intentional order, below are the additional interesting "early warning signs" I began tracking after reading other articles on recession leading indicators. These were not correlated to B&H strategy returns.

YoY Small Business Hiring Sentiment
This metric supposedly leads unemployment by about four months. It is a survey index measure, so YoY percent change is used, suggesting that a negative result indicates an upcoming hiring downturn. In July, the result was -8.7% (trending negative). It was negative in January, February, March, and June 2019 due to stronger sentiment over the same months in 2018.

New Jobless Claims and Growth from Lowest Point
This is a 4WMA of weekly new jobless claims. This is supposedly a leading indicator of unemployment when it is above 300K. Currently, it 213,750 and holding fairly steady.

Growth in New Jobless Claims is a supposed leading indicator of unemployment when it reaches 69K over its lowest point. The lowest claims in the past two years was 212,000, which just occurred at the end of July 2019. It is currently 1,750 above the two-year low point.

"Temp" Workers Employment
This tracks the YoY change in employment of workers in temporary job positions. The idea is that temporary workers are the first to be laid off in a downturn, sort of the proverbial canary in the coal mine, and triggers when temporary hire growth goes negative. In July, this metric was 0.98% (trending towards trigger).

"Breadwinner" Employment
This is a YoY change in employment for people between 25-54 years old. It triggers when "breadwinner" growth goes negative. In July, this metric was -0.05% (triggered).

Industrial Capacity Utilization
Along with Industrial Production, this metric indicates how full the industrial pipeline is. It is a supposedly leading indicator of recession when it is above 80%, suggesting an overheating economy. In July, Industrial Capacity Utilization was 77.49% and decreasing. In the past two years, it peaked at 79.57% in November 2018.

PMI
This is a survey of manufacturing Purchasing Managers sentiment, based on expectations of new purchase orders for manufacturing supplies, raw materials, etc. Scores above 50 indicate optimism, below 50 indicates pessimism in future ordering.

In essence, this is a leading indicator of the manufacturing supply chain. Supposedly, Taiwan PMI is a six-month leading indicator of USA PMI, and Singapore PMI is a four-month leading indicator as these countries are at the front-end of the global supply chain. When these countries turn pessimistic, it suggests that USA manufacturing will show a downturn in four to six months, with Europe somewhere in between.

Here are the July PMI results for key indicator countries:
  • China (#2 economy) - 49.9 (48.3 six months ago)
  • Japan (#3 economy) - 49.4 (50.3 six months ago)
  • Taiwan - 48.1 (47.5 six months ago)
  • South Korea - 47.3 (48.3 six months ago)
  • Singapore - 49.8 (50.7 six months ago)
  • Germany (#4 economy) - 43.2 (49.7 six months ago)
  • France - 49.7 (51.2 six months ago)
  • Italy - 48.5 (47.8 six months ago)
  • Eurozone (#2 economy) - 46.5 (50.5 six months ago)
  • USA (#1 economy) - 50.4 (56.6 six months ago)
Inflation
Inflation has been fairly steady. YoY CPI in July was 1.81%, down from a high of 2.95% in July 2018. Core Inflation (ex food and energy) is 2.21%, down from 2.35% last July.

Yield Curve
An inverted yield curve sustained for three months supposedly leads a recession by 9-18 months. The 1-month and 3-month yield curves have been inverted since May. The 1-year yield curve inverted in May and again in July. Currently the yields are:
  • 1Mo: -0.37%
  • 3Mo: -0.32%
  • 1Yr: -0.18%
  • 2Yr: +0.02%
  • 5Yr: +0.11%
Bottom Line
Take this FWIW...

The linked articles' leading indicators are currently NOT signaling a retreat, but trending in that direction. Jobless claims are still low, but breadwinners are contracting and temps are close. This is corroborated by small business hiring sentiment, which has been negative from a year ago for the past two months.

Manufacturing is slowing down. Industrial production growth is close to zero and capacity utilization is falling. Asia-Pac manufacturing sentiment is still pessimistic and Europe is still declining. The United States is still optimistic, but USA PMI is borderline.

The big news is the inverted yield curve. The 1Yr yield inverted and the 2Yr yield is practically zero. The short-term yields have been inverted since May.

-B

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BlueEars
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Re: My trend following strategy and experience

Post by BlueEars » Fri Aug 16, 2019 11:30 am

Forester wrote:
Fri Aug 16, 2019 10:46 am
The present 'under-performance' of equity index trend following is not unusual - the double home runs of the 2000s are the outlier; https://movement.capital/getting-real-a ... ng-returns
There are at least 2 forms of trend following. One is based strictly on price behavior like a moving average on the SP500. The other is based on price behavior plus some fundamentals like unemployment or valuation or the yield curve.

So some trend following strategies might well keep up with the last 10 years which has been a great time to buy-hold. I would certainly agree that the pure moving average approach will have more whipsaws and has under performed in the last 10 years or so.

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Re: My trend following strategy and experience

Post by Always passive » Fri Aug 16, 2019 12:17 pm

BlueEars wrote:
Fri Aug 16, 2019 11:30 am
Forester wrote:
Fri Aug 16, 2019 10:46 am
The present 'under-performance' of equity index trend following is not unusual - the double home runs of the 2000s are the outlier; https://movement.capital/getting-real-a ... ng-returns
There are at least 2 forms of trend following. One is based strictly on price behavior like a moving average on the SP500. The other is based on price behavior plus some fundamentals like unemployment or valuation or the yield curve.

So some trend following strategies might well keep up with the last 10 years which has been a great time to buy-hold. I would certainly agree that the pure moving average approach will have more whipsaws and has under performed in the last 10 years or so.
There is also the absolute momentum where the decision is made on return

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Re: My trend following strategy and experience

Post by BlueEars » Fri Aug 16, 2019 12:31 pm

Always passive wrote:
Fri Aug 16, 2019 12:17 pm
BlueEars wrote:
Fri Aug 16, 2019 11:30 am
Forester wrote:
Fri Aug 16, 2019 10:46 am
The present 'under-performance' of equity index trend following is not unusual - the double home runs of the 2000s are the outlier; https://movement.capital/getting-real-a ... ng-returns
There are at least 2 forms of trend following. One is based strictly on price behavior like a moving average on the SP500. The other is based on price behavior plus some fundamentals like unemployment or valuation or the yield curve.

So some trend following strategies might well keep up with the last 10 years which has been a great time to buy-hold. I would certainly agree that the pure moving average approach will have more whipsaws and has under performed in the last 10 years or so.
There is also the absolute momentum where the decision is made on return
Yes, you are right. We have probably left out many other trend following approaches that have been used by institutions and individuals over the years.

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Re: My trend following strategy and experience

Post by BlueEars » Fri Aug 16, 2019 12:42 pm

Barsoom wrote:
Fri Aug 16, 2019 11:26 am
....

Bottom Line
Take this FWIW...

The linked articles' leading indicators are currently NOT signaling a retreat, but trending in that direction. Jobless claims are still low, but breadwinners are contracting and temps are close. This is corroborated by small business hiring sentiment, which has been negative from a year ago for the past two months.

Manufacturing is slowing down. Industrial production growth is close to zero and capacity utilization is falling. Asia-Pac manufacturing sentiment is still pessimistic and Europe is still declining. The United States is still optimistic, but USA PMI is borderline.

The big news is the inverted yield curve. The 1Yr yield inverted and the 2Yr yield is practically zero. The short-term yields have been inverted since May.

-B
Nice summary, thanks.

Do you have links for the breadwinners data and temp employment data?

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Re: My trend following strategy and experience

Post by Barsoom » Fri Aug 16, 2019 1:48 pm

BlueEars wrote:
Fri Aug 16, 2019 12:42 pm
Do you have links for the breadwinners data and temp employment data?
Breadwinners: https://fred.stlouisfed.org/series/LNS12000060

Temp Employment: https://fred.stlouisfed.org/graph/?g=nyKV

-B

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Re: My trend following strategy and experience

Post by Busdrvr » Thu Aug 29, 2019 10:40 am

David Steins latest MFTROU podcast is devoted to Momentum and Trend Following.

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Re: My trend following strategy and experience

Post by Always passive » Thu Aug 29, 2019 2:56 pm

Busdrvr wrote:
Thu Aug 29, 2019 10:40 am
David Steins latest MFTROU podcast is devoted to Momentum and Trend Following.
Can you provide a link?

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Re: My trend following strategy and experience

Post by willthrill81 » Thu Aug 29, 2019 3:25 pm

Always passive wrote:
Thu Aug 29, 2019 2:56 pm
Busdrvr wrote:
Thu Aug 29, 2019 10:40 am
David Steins latest MFTROU podcast is devoted to Momentum and Trend Following.
Can you provide a link?
https://moneyfortherestofus.com/266-momentum-investing/
“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 Busdrvr » Wed Sep 04, 2019 1:48 pm

If I have it correct, July UE was 3.7 and below the avg so no further action required in your strategy. Although different from your strategy, it appears at month end asset classes from IVY portfolio’s also were above their MA’s so would remain invested regardless.

I have a small taxable single strategy experiment at sector surfer where I am invested in (current favored sector etf)a single ETF (ARKW). This morning I received a trade notification to exit and buy the one of the strategy’s bear market assets, in this case IEF. Ishares 7-10 yr treasury bond etf. I will have to accept a 1.3% loss on the trade after 90 days in ARKW if I execute as instructed.

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Re: My trend following strategy and experience

Post by willthrill81 » Wed Sep 04, 2019 4:09 pm

Busdrvr wrote:
Wed Sep 04, 2019 1:48 pm
If I have it correct, July UE was 3.7 and below the avg so no further action required in your strategy. Although different from your strategy, it appears at month end asset classes from IVY portfolio’s also were above their MA’s so would remain invested regardless.
Yes, I'm still 100% in equities, mostly mid-cap and large-cap growth right now.
“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 BlueEars » Thu Sep 05, 2019 9:15 am

willthrill81 wrote:
Wed Sep 04, 2019 4:09 pm
Busdrvr wrote:
Wed Sep 04, 2019 1:48 pm
If I have it correct, July UE was 3.7 and below the avg so no further action required in your strategy. Although different from your strategy, it appears at month end asset classes from IVY portfolio’s also were above their MA’s so would remain invested regardless.
Yes, I'm still 100% in equities, mostly mid-cap and large-cap growth right now.
I too have equities in US MG and LG. Seems that the unemployment data might be ok this Friday since the private payroll data came out today and was good. I am guessing there is a correlation with unemployment data.

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Re: My trend following strategy and experience

Post by BlueEars » Sun Sep 08, 2019 2:41 pm

Another go at the UER calculation. I think this is what another poster (Gobal100) meant way back on page 3. Suppose a month is reported as 3.8. Due to rounding this could range from 3.76 to 3.84 in the actual Fed data which is rounded to 3.8 in the report. So in the worst case rounding issue a 12 month average of all the 2 digit numbers should be higher than just taking the simple average of these two digit values.

The worst case could be 11 months on the high side of the rounding followed by one month on the low side. This could easily create an unnecessary switch.

Does this make sense? I am on vacation so can’t easily supply a numerical example.

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Re: My trend following strategy and experience

Post by willthrill81 » Sun Sep 08, 2019 2:48 pm

BlueEars wrote:
Sun Sep 08, 2019 2:41 pm
Another go at the UER calculation. I think this is what another poster (Gobal100) meant way back on page 3. Suppose a month is reported as 3.8. Due to rounding this could range from 3.76 to 3.84 in the actual Fed data which is rounded to 3.8 in the report. So in the worst case rounding issue a 12 month average of all the 2 digit numbers should be higher than just taking the simple average of these two digit values.

The worst case could be 11 months on the high side of the rounding followed by one month on the low side. This could easily create an unnecessary switch.

Does this make sense? I am on vacation so can’t easily supply a numerical example.
Yes, that could happen. But the actual UER could vary from the reported UER merely on the basis of sampling error.

I'm not personally concerned about this for two reasons. First, the UER is only one of two signals I use to determine when to enter/exit stocks. Second, despite this issue having existed in the UER data all along, it has been reliable enough to serve as what I consider to be a very good recession signal.
“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 Hydromod » Sun Sep 08, 2019 2:58 pm

I've been backtesting using the UER as a signal with Hedgefundie's UPRO/TMF scheme. The twist is to allocate the risk budget in the risk parity scheme according to the UER.

I find that it is appealing to only step partway between in and out of the market on the signal. I don't necessarily go 100% in or out either. This mitigates issues with sampling and roundoff in the UER.

You might want to check it out at viewtopic.php?f=10&t=284955&start=150#p4739133.

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Re: My trend following strategy and experience

Post by willthrill81 » Sun Sep 08, 2019 3:08 pm

Hydromod wrote:
Sun Sep 08, 2019 2:58 pm
I've been backtesting using the UER as a signal with Hedgefundie's UPRO/TMF scheme. The twist is to allocate the risk budget in the risk parity scheme according to the UER.

I find that it is appealing to only step partway between in and out of the market on the signal. I don't necessarily go 100% in or out either. This mitigates issues with sampling and roundoff in the UER.

You might want to check it out at viewtopic.php?f=10&t=284955&start=150#p4739133.
That sounds reasonable.
“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 Global100 » Sun Sep 08, 2019 7:09 pm

BlueEars wrote:
Sun Sep 08, 2019 2:41 pm
Another go at the UER calculation. I think this is what another poster (Gobal100) meant way back on page 3. Suppose a month is reported as 3.8. Due to rounding this could range from 3.76 to 3.84 in the actual Fed data which is rounded to 3.8 in the report. So in the worst case rounding issue a 12 month average of all the 2 digit numbers should be higher than just taking the simple average of these two digit values.

The worst case could be 11 months on the high side of the rounding followed by one month on the low side. This could easily create an unnecessary switch.

Does this make sense? I am on vacation so can’t easily supply a numerical example.
Hey, from Global100. Here is a counter example to my thought back on page 3.

Assume a person following this trend strategy in August 2020 is already 100% in stock indexes and the monthly UER data keeps him/her invested for the upcoming months.

Say that each of the twelve months below, we got a peek at the more precise UER data (coincidentally all identical!):

2020
Aug 4.049%
Sep 4.049%
Oct 4.049%
Nov 4.049%
Dec 4.049%

2021
Jan 4.049%
Feb 4.049%
Mar 4.049%
Apr 4.049%
May 4.049%
Jun 4.049%
Jul 4.049%

Notice that 4.049 is within 0.001 of rounding up to 4.1, but instead 4.049 rounds all the way down to 4.0 when forced to round to the nearest tenth, as the BLS figures do. BLS's rounded 12 month average becomes 4.0%.

Then, in August 2021, the BLS internally calculates its UER figure as 4.050%, and so they round it all the way up and report it as 4.1%.
The new 12 month average is [(4.0 x 11 months) + (4.1 x 1 month)]/12 = 4.0083333%

That month's 4.1% is greater than the 12 month average (4.008333%), so this Trend Following strategy then proceeds to evaluate the 7mma performance of indexes and possibly could have the investor sell all stock indexes as a result.

Using the more "precise" figures for an August 2021 calculation:
The 12 month average is [(4.049% x 11months) + (4.050% x 1month)]/12 = 4.049083333%
The 4.050% for August 2021 is still slightly greater than the 12 month average of 4.049083333%, so this Trend Follower's stock indexes could be sold depending on the 7mma.

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Re: My trend following strategy and experience

Post by LittleD » Sun Sep 08, 2019 7:42 pm

If you were to take the data series of UER and calculate a bollinger band around the data, the upper band would be at just about 4.16 percent. If I was using UER as my trigger, I would wait to make a move until UER hit that upper band. Bollinger bands use standard deviation and his work has been used for years.

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Re: My trend following strategy and experience

Post by BlueEars » Sun Sep 08, 2019 11:51 pm

Global100, thanks for the numerical example. So we have at least two choices for a UER rule:

A) average - current_month > 0

B) average - current_month > 0.10

I would choose between these based on the best back test results. If they are both the same I would go with (B), the higher safety margin to avoid whipsaws.

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Re: My trend following strategy and experience

Post by Always passive » Mon Sep 09, 2019 1:10 am

I think that you all are thinking about this like this government information is perfect, which we all know it is not. Thus if I were to use it plus absolute momentum (I use 1 year average return vs present return) or 200 day average on price, etc., I would just pick something that makes sense to me given the inaccuracies of the data and then use it consistently. I think that the point of “consistent/rule based” is more important than whatever you use A or B above.

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Re: My trend following strategy and experience

Post by BlueEars » Mon Sep 09, 2019 1:40 am

Always passive wrote:
Mon Sep 09, 2019 1:10 am
I think that you all are thinking about this like this government information is perfect, which we all know it is not. Thus if I were to use it plus absolute momentum (I use 1 year average return vs present return) or 200 day average on price, etc., I would just pick something that makes sense to me given the inaccuracies of the data and then use it consistently. I think that the point of “consistent/rule based” is more important than whatever you use A or B above.
I agree any trend following method is imperfect. The data is not all that robust or statistically satisfying. Personally I just try to find an analytical method for each variable as my best shot. Then it is in the hands of Mr. Market.

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Re: My trend following strategy and experience

Post by Forester » Mon Sep 09, 2019 4:06 am

I wonder if the "cultural memory" of Dotcom & GFC will mean we'll have to wait a long time for trend following profits. The experience of German citizens with hyperinflation meant that the German Central Bank (ECB today) is relatively hawkish, up to the present day.

Sometimes commentators will say, "well investors are complacent, long bullmarket, FAANG" etc etc, but I don't really see that. 08/09 appears to be very fresh in the memory of investors today. I do not know how exactly the painful recollection of a savage V-shape market drop would impact the collective behaviour of investors today, but I think it does.

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Re: My trend following strategy and experience

Post by willthrill81 » Mon Sep 09, 2019 6:01 pm

Always passive wrote:
Mon Sep 09, 2019 1:10 am
I think that you all are thinking about this like this government information is perfect, which we all know it is not. Thus if I were to use it plus absolute momentum (I use 1 year average return vs present return) or 200 day average on price, etc., I would just pick something that makes sense to me given the inaccuracies of the data and then use it consistently. I think that the point of “consistent/rule based” is more important than whatever you use A or B above.
I know that the data aren't perfect. None of our backtested data is. But I believe that my system will be good enough for my purposes.

I agree that creating rules and sticking to them is probably more important than the nuanced details of the rules.
“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 willthrill81 » Mon Sep 09, 2019 6:08 pm

Forester wrote:
Mon Sep 09, 2019 4:06 am
I wonder if the "cultural memory" of Dotcom & GFC will mean we'll have to wait a long time for trend following profits.
We certainly might. Almost any trend following system would have lagged buy-and-hold significantly from about 1981-1999. From 1990-1999, a 10 month moving average strategy, using cash as the out-of-market asset, would have lagged the S&P 500 by a little over 6% annually. That sounds pretty bad, although it would still have returned almost 13% nominal.

But from 2000-2009, the same MMA strategy would have returned 7.8% nominal compared to buy-and-hold's -1%.

And again, from 2010-2019, the MMA strategy would have returned 6.5% vs. BAH's 12.66%.

Note that the MMA strategy could have been significantly improved with a more productive out-of-market asset class, such as long-term Treasuries, but I list the above since cash is most often used in the academic literature for some odd reason.

Will 2020-2029 favor trend following? I have no idea. But it does seem that trend following in general has been effective in smoothing out returns and avoiding the worst of stocks' drawdowns. For this reason, I believe that trend following might have much more benefit for retirees than accumulators.
“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 jdilla1107 » Mon Sep 09, 2019 7:54 pm

willthrill81 wrote:
Mon Sep 09, 2019 6:08 pm
Forester wrote:
Mon Sep 09, 2019 4:06 am
I wonder if the "cultural memory" of Dotcom & GFC will mean we'll have to wait a long time for trend following profits.
We certainly might. Almost any trend following system would have lagged buy-and-hold significantly from about 1981-1999. From 1990-1999, a 10 month moving average strategy, using cash as the out-of-market asset, would have lagged the S&P 500 by a little over 6% annually. That sounds pretty bad, although it would still have returned almost 13% nominal.

But from 2000-2009, the same MMA strategy would have returned 7.8% nominal compared to buy-and-hold's -1%.

And again, from 2010-2019, the MMA strategy would have returned 6.5% vs. BAH's 12.66%.

Note that the MMA strategy could have been significantly improved with a more productive out-of-market asset class, such as long-term Treasuries, but I list the above since cash is most often used in the academic literature for some odd reason.

Will 2020-2029 favor trend following? I have no idea. But it does seem that trend following in general has been effective in smoothing out returns and avoiding the worst of stocks' drawdowns. For this reason, I believe that trend following might have much more benefit for retirees than accumulators.
You seem to be very big on loss avoidance. Have you ever considered just insuring a buy and hold portfolio with rolling put options? I believe doing so would "only" have a 2-3% annual drag on the stock portfolio. This seems to beat your MMA strategy quoted here pretty significantly. Lagging by 6% over 10 years is horrendous. I believe the main reason portfolio insurance is seen as non-productive is that it gives away 2-3% a year for "no reason". But if you are comparing it to your quoted performance, it feels like a home run.

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Re: My trend following strategy and experience

Post by HomerJ » Mon Sep 09, 2019 9:07 pm

willthrill81 wrote:
Mon Sep 09, 2019 6:08 pm
But it does seem that trend following in general has been effective in smoothing out returns and avoiding the worst of stocks' drawdowns. For this reason, I believe that trend following might have much more benefit for retirees than accumulators.
No way should a retiree swing from 100% stocks to 0% stocks based on "signals", no matter how well they worked in the past.
Last edited by HomerJ on Mon Sep 09, 2019 9:09 pm, edited 2 times in total.
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Re: My trend following strategy and experience

Post by willthrill81 » Mon Sep 09, 2019 9:08 pm

jdilla1107 wrote:
Mon Sep 09, 2019 7:54 pm
willthrill81 wrote:
Mon Sep 09, 2019 6:08 pm
Forester wrote:
Mon Sep 09, 2019 4:06 am
I wonder if the "cultural memory" of Dotcom & GFC will mean we'll have to wait a long time for trend following profits.
We certainly might. Almost any trend following system would have lagged buy-and-hold significantly from about 1981-1999. From 1990-1999, a 10 month moving average strategy, using cash as the out-of-market asset, would have lagged the S&P 500 by a little over 6% annually. That sounds pretty bad, although it would still have returned almost 13% nominal.

But from 2000-2009, the same MMA strategy would have returned 7.8% nominal compared to buy-and-hold's -1%.

And again, from 2010-2019, the MMA strategy would have returned 6.5% vs. BAH's 12.66%.

Note that the MMA strategy could have been significantly improved with a more productive out-of-market asset class, such as long-term Treasuries, but I list the above since cash is most often used in the academic literature for some odd reason.

Will 2020-2029 favor trend following? I have no idea. But it does seem that trend following in general has been effective in smoothing out returns and avoiding the worst of stocks' drawdowns. For this reason, I believe that trend following might have much more benefit for retirees than accumulators.
You seem to be very big on loss avoidance. Have you ever considered just insuring a buy and hold portfolio with rolling put options? I believe doing so would "only" have a 2-3% annual drag on the stock portfolio. This seems to beat your MMA strategy quoted here pretty significantly. Lagging by 6% over 10 years is horrendous. I believe the main reason portfolio insurance is seen as non-productive is that it gives away 2-3% a year for "no reason". But if you are comparing it to your quoted performance, it feels like a home run.
I'm not using a 10 MMA strategy, as noted in the OP. I was merely referring to it for discussion purposes. But it is actually one of the more popular trend following systems out there. Had long-term Treasuries been substituted for cash as the out of market asset, the overall returns from 1990-current were 11.26% compared to 9.57% for the S&P 500, and the maximum drawdown was far lower at -18% vs. -51%. Using LTT would have reduced the lag compared to buy-and-hold to 2.5%.

As I've said many times in this thread, you have to pick your poison. Trend following will lag the market at times, perhaps significantly and for many years. Buy-and-hold has very deep drawdowns. Some notable investors, such as Paul Merriman and Meb Faber, split their portfolios evenly between the two.
“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 willthrill81 » Mon Sep 09, 2019 9:08 pm

HomerJ wrote:
Mon Sep 09, 2019 9:07 pm
willthrill81 wrote:
Mon Sep 09, 2019 6:08 pm
But it does seem that trend following in general has been effective in smoothing out returns and avoiding the worst of stocks' drawdowns. For this reason, I believe that trend following might have much more benefit for retirees than accumulators.
No way should a retiree swing from 100% stocks to 0% stocks based on "signals", no matter how well they worked in the past.
Why not? Academic research has found that doing so would have been very useful for retirees.

Also, it is not necessary to go from 100% to 0%. The swing could be from 70% to 30%, 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

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Re: My trend following strategy and experience

Post by HomerJ » Mon Sep 09, 2019 9:11 pm

willthrill81 wrote:
Mon Sep 09, 2019 9:08 pm
HomerJ wrote:
Mon Sep 09, 2019 9:07 pm
willthrill81 wrote:
Mon Sep 09, 2019 6:08 pm
But it does seem that trend following in general has been effective in smoothing out returns and avoiding the worst of stocks' drawdowns. For this reason, I believe that trend following might have much more benefit for retirees than accumulators.
No way should a retiree swing from 100% stocks to 0% stocks based on "signals", no matter how well they worked in the past.
Why not?

Also, it is not necessary to go from 100% to 0%. The swing could be from 70% to 30%, for instance.
The whipsaws could actually be worse for a retiree... Sequence of returns risk, right? A couple of 10%-15% whipsaws early in retirement, and the retiree may not have time to wait it out for the trend following strategy to start working again.

Partial swings would help.

But, if you want to avoid a big stock down turn as a retiree, don't have so much in stocks. You are using this strategy because you want the big gains up while hopefully avoiding the big losses down... A retiree doesn't need the big gains up... If they need a lot of return, they shouldn't retire yet. It should be a different mindset at that point.
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Re: My trend following strategy and experience

Post by willthrill81 » Mon Sep 09, 2019 9:20 pm

HomerJ wrote:
Mon Sep 09, 2019 9:11 pm
willthrill81 wrote:
Mon Sep 09, 2019 9:08 pm
HomerJ wrote:
Mon Sep 09, 2019 9:07 pm
willthrill81 wrote:
Mon Sep 09, 2019 6:08 pm
But it does seem that trend following in general has been effective in smoothing out returns and avoiding the worst of stocks' drawdowns. For this reason, I believe that trend following might have much more benefit for retirees than accumulators.
No way should a retiree swing from 100% stocks to 0% stocks based on "signals", no matter how well they worked in the past.
Why not?

Also, it is not necessary to go from 100% to 0%. The swing could be from 70% to 30%, for instance.
The whipsaws could actually be worse for a retiree... Sequence of returns risk, right? A couple of 10%-15% whipsaws early in retirement, and the retiree may not have time to wait it out for the trend following strategy to start working again.

Partial swings would help.

But, if you want to avoid a big stock down turn as a retiree, don't have so much in stocks. You are using this strategy because you want the big gains up while hopefully avoiding the big losses down... A retiree doesn't need the big gains up... If they need a lot of return, they shouldn't retire yet. It should be a different mindset at that point.
Yes, there is a risk of whipsaws, but there is also a risk with buy-and-hold of a deep drawdown in stocks that doesn't recover quickly.

The academic research I linked to showed that a simple 10 MMA strategy would have done much better than a fixed 60/40 AA.

Here's how 4% withdrawals (i.e. '4% rule' type) would have worked for year 2000 retirees with 100% VTSMX vs. the 10 MMA strategy (using LTT as the out of market asset). For a more realistic comparison, a 60/40 AA would now have an inflation-adjusted balance of $7,032.

Image

But yes, if someone is really afraid of whipsaws, they could use the 'partial swing' approach.
“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 nps » Tue Sep 10, 2019 6:17 am

willthrill81 wrote:
Mon Sep 09, 2019 9:20 pm
Yes, there is a risk of whipsaws, but there is also a risk with buy-and-hold of a deep drawdown in stocks that doesn't recover quickly.

The academic research I linked to showed that a simple 10 MMA strategy would have done much better than a fixed 60/40 AA.

Here's how 4% withdrawals (i.e. '4% rule' type) would have worked for year 2000 retirees with 100% VTSMX vs. the 10 MMA strategy (using LTT as the out of market asset). For a more realistic comparison, a 60/40 AA would now have an inflation-adjusted balance of $7,032.

Image

But yes, if someone is really afraid of whipsaws, they could use the 'partial swing' approach.
I calculate a 60/40 AA (with VBMFX), Jan 2000 - Aug 2019, withdraw 4 percent annually to result in inflation adjusted end balance of $9412. That's more than 94% of your nest egg still intact nearly 20 years into retirement.

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Re: My trend following strategy and experience

Post by Forester » Tue Sep 10, 2019 6:23 am

Another way to reduce whipsaws is to follow an asset that's less volatile than SPY.

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Re: My trend following strategy and experience

Post by BlueEars » Tue Sep 10, 2019 8:28 am

Forester wrote:
Tue Sep 10, 2019 6:23 am
Another way to reduce whipsaws is to follow an asset that's less volatile than SPY.
Suggestions?

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Re: My trend following strategy and experience

Post by Forester » Tue Sep 10, 2019 8:38 am

BlueEars wrote:
Tue Sep 10, 2019 8:28 am
Forester wrote:
Tue Sep 10, 2019 6:23 am
Another way to reduce whipsaws is to follow an asset that's less volatile than SPY.
Suggestions?
I would trend follow USMV rather than spending time trying to massage/filter SPY's returns

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Re: My trend following strategy and experience

Post by rascott » Tue Sep 10, 2019 8:44 am

willthrill81 wrote:
Mon Sep 09, 2019 9:20 pm
HomerJ wrote:
Mon Sep 09, 2019 9:11 pm
willthrill81 wrote:
Mon Sep 09, 2019 9:08 pm
HomerJ wrote:
Mon Sep 09, 2019 9:07 pm
willthrill81 wrote:
Mon Sep 09, 2019 6:08 pm
But it does seem that trend following in general has been effective in smoothing out returns and avoiding the worst of stocks' drawdowns. For this reason, I believe that trend following might have much more benefit for retirees than accumulators.
No way should a retiree swing from 100% stocks to 0% stocks based on "signals", no matter how well they worked in the past.
Why not?

Also, it is not necessary to go from 100% to 0%. The swing could be from 70% to 30%, for instance.
The whipsaws could actually be worse for a retiree... Sequence of returns risk, right? A couple of 10%-15% whipsaws early in retirement, and the retiree may not have time to wait it out for the trend following strategy to start working again.

Partial swings would help.

But, if you want to avoid a big stock down turn as a retiree, don't have so much in stocks. You are using this strategy because you want the big gains up while hopefully avoiding the big losses down... A retiree doesn't need the big gains up... If they need a lot of return, they shouldn't retire yet. It should be a different mindset at that point.
Yes, there is a risk of whipsaws, but there is also a risk with buy-and-hold of a deep drawdown in stocks that doesn't recover quickly.

The academic research I linked to showed that a simple 10 MMA strategy would have done much better than a fixed 60/40 AA.

Here's how 4% withdrawals (i.e. '4% rule' type) would have worked for year 2000 retirees with 100% VTSMX vs. the 10 MMA strategy (using LTT as the out of market asset). For a more realistic comparison, a 60/40 AA would now have an inflation-adjusted balance of $7,032.

Image

But yes, if someone is really afraid of whipsaws, they could use the 'partial swing' approach.

So Will.... are you going to post a "Red Alert" on here when your system signals? Do we owe you a fee? :sharebeer

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Re: My trend following strategy and experience

Post by willthrill81 » Tue Sep 10, 2019 9:54 am

nps wrote:
Tue Sep 10, 2019 6:17 am
I calculate a 60/40 AA (with VBMFX), Jan 2000 - Aug 2019, withdraw 4 percent annually to result in inflation adjusted end balance of $9412. That's more than 94% of your nest egg still intact nearly 20 years into retirement.
I just checked it again with Portfolio Visualizer, using VTSMX (60%) and VBFMX (40%). The inflation-adjusted ending balance would be $7,032.
“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 willthrill81 » Tue Sep 10, 2019 9:55 am

rascott wrote:
Tue Sep 10, 2019 8:44 am
So Will.... are you going to post a "Red Alert" on here when your system signals? Do we owe you a fee? :sharebeer
I take Zelle. :wink:

I will continue to post when I move out of stocks.
“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 nps » Tue Sep 10, 2019 10:55 am

willthrill81 wrote:
Tue Sep 10, 2019 9:54 am
nps wrote:
Tue Sep 10, 2019 6:17 am
I calculate a 60/40 AA (with VBMFX), Jan 2000 - Aug 2019, withdraw 4 percent annually to result in inflation adjusted end balance of $9412. That's more than 94% of your nest egg still intact nearly 20 years into retirement.
I just checked it again with Portfolio Visualizer, using VTSMX (60%) and VBFMX (40%). The inflation-adjusted ending balance would be $7,032.
Odd, I am using the same website. Jan 2000 - Aug 2019, $10k initial amount, withdraw fixed 4% annually, rebalance annually. I do wonder what we're doing differently.

Even so, keeping 70% of the nest egg is not bad after 20 years of withdrawals. I think I'd be more comfortable with that then moving in/out of something like 100 percent LTTs in retirement, but that's just my opinion.

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Re: My trend following strategy and experience

Post by willthrill81 » Tue Sep 10, 2019 11:00 am

nps wrote:
Tue Sep 10, 2019 10:55 am
willthrill81 wrote:
Tue Sep 10, 2019 9:54 am
nps wrote:
Tue Sep 10, 2019 6:17 am
I calculate a 60/40 AA (with VBMFX), Jan 2000 - Aug 2019, withdraw 4 percent annually to result in inflation adjusted end balance of $9412. That's more than 94% of your nest egg still intact nearly 20 years into retirement.
I just checked it again with Portfolio Visualizer, using VTSMX (60%) and VBFMX (40%). The inflation-adjusted ending balance would be $7,032.
Odd, I am using the same website. Jan 2000 - Aug 2019, $10k initial amount, withdraw fixed 4% annually, rebalance annually. I do wonder what we're doing differently.
You're withdrawing a fixed 4% of the portfolio's value every year. That's different from the 4% rule, which states that you can withdraw 4% of the initial starting balance and then continue withdrawing that same dollar amount, adjusted for inflation, each subsequent year for 30 years.

Below is what it looks like to do this in Portfolio Visualizer.

Image
“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 nps » Tue Sep 10, 2019 11:23 am

willthrill81 wrote:
Tue Sep 10, 2019 11:00 am
nps wrote:
Tue Sep 10, 2019 10:55 am
willthrill81 wrote:
Tue Sep 10, 2019 9:54 am
nps wrote:
Tue Sep 10, 2019 6:17 am
I calculate a 60/40 AA (with VBMFX), Jan 2000 - Aug 2019, withdraw 4 percent annually to result in inflation adjusted end balance of $9412. That's more than 94% of your nest egg still intact nearly 20 years into retirement.
I just checked it again with Portfolio Visualizer, using VTSMX (60%) and VBFMX (40%). The inflation-adjusted ending balance would be $7,032.
Odd, I am using the same website. Jan 2000 - Aug 2019, $10k initial amount, withdraw fixed 4% annually, rebalance annually. I do wonder what we're doing differently.
You're withdrawing a fixed 4% of the portfolio's value every year. That's different from the 4% rule, which states that you can withdraw 4% of the initial starting balance and then continue withdrawing that same dollar amount, adjusted for inflation, each subsequent year for 30 years.

Below is what it looks like to do this in Portfolio Visualizer.

Image
Thanks! I had assumed it calculated from the initial balance. Good to know.

Do you think there is compelling evidence that trend following in retirement could maintain or increase the SWR over BAH? Or just that its minimization of deep drawdowns may be better psychologically?

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Tue Sep 10, 2019 4:31 pm

willthrill81 wrote:
Tue Sep 10, 2019 9:54 am
nps wrote:
Tue Sep 10, 2019 6:17 am
I calculate a 60/40 AA (with VBMFX), Jan 2000 - Aug 2019, withdraw 4 percent annually to result in inflation adjusted end balance of $9412. That's more than 94% of your nest egg still intact nearly 20 years into retirement.
I just checked it again with Portfolio Visualizer, using VTSMX (60%) and VBFMX (40%). The inflation-adjusted ending balance would be $7,032.
It does not look like $7,032 on the plot. Why so different? It looks to be less than half of $10,000:

Image

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Tue Sep 10, 2019 4:56 pm

nps wrote:
Tue Sep 10, 2019 11:23 am
willthrill81 wrote:
Tue Sep 10, 2019 11:00 am
nps wrote:
Tue Sep 10, 2019 10:55 am
willthrill81 wrote:
Tue Sep 10, 2019 9:54 am
nps wrote:
Tue Sep 10, 2019 6:17 am
I calculate a 60/40 AA (with VBMFX), Jan 2000 - Aug 2019, withdraw 4 percent annually to result in inflation adjusted end balance of $9412. That's more than 94% of your nest egg still intact nearly 20 years into retirement.
I just checked it again with Portfolio Visualizer, using VTSMX (60%) and VBFMX (40%). The inflation-adjusted ending balance would be $7,032.
Odd, I am using the same website. Jan 2000 - Aug 2019, $10k initial amount, withdraw fixed 4% annually, rebalance annually. I do wonder what we're doing differently.
You're withdrawing a fixed 4% of the portfolio's value every year. That's different from the 4% rule, which states that you can withdraw 4% of the initial starting balance and then continue withdrawing that same dollar amount, adjusted for inflation, each subsequent year for 30 years.

Below is what it looks like to do this in Portfolio Visualizer.

Image
Thanks! I had assumed it calculated from the initial balance. Good to know.

Do you think there is compelling evidence that trend following in retirement could maintain or increase the SWR over BAH? Or just that its minimization of deep drawdowns may be better psychologically?
The academic study I linked to above found that trend following would have significantly boosted the SWR. The historic improvement in risk-adjusted returns of trend following over BAH has not been merely psychological.
“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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willthrill81
Posts: 13939
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: My trend following strategy and experience

Post by willthrill81 » Tue Sep 10, 2019 4:57 pm

tadamsmar wrote:
Tue Sep 10, 2019 4:31 pm
willthrill81 wrote:
Tue Sep 10, 2019 9:54 am
nps wrote:
Tue Sep 10, 2019 6:17 am
I calculate a 60/40 AA (with VBMFX), Jan 2000 - Aug 2019, withdraw 4 percent annually to result in inflation adjusted end balance of $9412. That's more than 94% of your nest egg still intact nearly 20 years into retirement.
I just checked it again with Portfolio Visualizer, using VTSMX (60%) and VBFMX (40%). The inflation-adjusted ending balance would be $7,032.
It does not look like $7,032 on the plot. Why so different? It looks to be less than half of $10,000:

Image
That's because the red line in that graph is for a 100% VTSMX portfolio, not a 60/40. When you run a timing model in Portfolio Visualizer, it automatically also includes a line for buy-and-hold of the timed asset(s).
“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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