My trend following strategy and experience

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Busdrvr
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Re: My trend following strategy and experience

Post by Busdrvr » Tue Feb 11, 2020 9:04 pm

tadamsmar wrote:
Tue Feb 11, 2020 12:14 pm
willthrill81 wrote:
Tue Feb 11, 2020 10:40 am
tadamsmar wrote:
Tue Feb 11, 2020 9:54 am
willthrill81 wrote:
Mon Feb 10, 2020 11:24 am
lock.that.stock wrote:
Mon Feb 10, 2020 11:22 am


willthril81 - are you comparing current SPY vs. 12 month MA? If that's the case I am getting closer to 10% (current SPY 333.23, 12 month MA is 299.71).
No, the 7 MMA, per my strategy defined in the OP.

And this is a simplification because I actually only move out of stocks when the 7 MMA for bonds is stronger than that of stocks, assuming that the UER trigger is 'on'.
In the OP, you say you use 7 month relative strength. Doesn't 7 MMA mean "7 month moving average"? Isn't the moving average calculation different from the relative strength calculation?
Relative strength, which only goes one step beyond MMA. That's why I said that my explanation was a simplification.
Relative strength is just the ratio of percentage returns over the 7 month period. It has absolutely nothing to do with the moving average of anything. Everyone should avoid confusing the two.
I appreciate the clarification as the statement “the 7 MMA is stronger than that of stocks” has been gnawing at me. As someone who likes to know how stuff works I just couldn’t wrap my mind around how this comparison could be made. Progress.

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BlueEars
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Re: My trend following strategy and experience

Post by BlueEars » Tue Feb 11, 2020 9:19 pm

Busdrvr wrote:
Tue Feb 11, 2020 9:04 pm

I appreciate the clarification as the statement “the 7 MMA is stronger than that of stocks” has been gnawing at me. As someone who likes to know how stuff works I just couldn’t wrap my mind around how this comparison could be made. Progress.
I was wondering the same thing. First, the 7 MMA is above the absolute value of the equity index indicating a sell signal assuming bonds beat this. Usually the 7 MMA of the bonds would be below the value of the bond fund in an equity selloff. If not, one might compare the two in percentage terms.

Example, equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund.

Perhaps Will will explain.

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Tue Feb 11, 2020 9:22 pm

BlueEars wrote:
Tue Feb 11, 2020 9:19 pm
Busdrvr wrote:
Tue Feb 11, 2020 9:04 pm

I appreciate the clarification as the statement “the 7 MMA is stronger than that of stocks” has been gnawing at me. As someone who likes to know how stuff works I just couldn’t wrap my mind around how this comparison could be made. Progress.
I was wondering the same thing. First, the 7 MMA is above the absolute value of the equity index indicating a sell signal assuming bonds beat this. Usually the 7 MMA of the bonds would be below the value of the bond fund in an equity selloff. If not, one might compare the two in percentage terms.

Example, equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund.
You've got it, assuming of course that the UER signal is 'on'.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Wed Feb 12, 2020 12:17 pm

willthrill81 wrote:
Tue Feb 11, 2020 9:22 pm
BlueEars wrote:
Tue Feb 11, 2020 9:19 pm
Busdrvr wrote:
Tue Feb 11, 2020 9:04 pm

I appreciate the clarification as the statement “the 7 MMA is stronger than that of stocks” has been gnawing at me. As someone who likes to know how stuff works I just couldn’t wrap my mind around how this comparison could be made. Progress.
I was wondering the same thing. First, the 7 MMA is above the absolute value of the equity index indicating a sell signal assuming bonds beat this. Usually the 7 MMA of the bonds would be below the value of the bond fund in an equity selloff. If not, one might compare the two in percentage terms.

Example, equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund.
You've got it, assuming of course that the UER signal is 'on'.
Let's say the the UER signal turns on in March. If you use the 7 MMA then stocks would have to decline around 10% to move you to bonds. But if you use 7 month relative strength (as you originally specified) stocks would have to decline around 20% to move you to bonds.

This is not an unimportant detail.

Given that the title of this thread is "My trend following strategy..." and given that you are the author of this thread, shouldn't you be informing people of your actual trend following strategy?

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Wed Feb 12, 2020 12:25 pm

tadamsmar wrote:
Wed Feb 12, 2020 12:17 pm
Let's say the the UER signal turns on in March. If you use the 7 MMA then stocks would have to decline around 10% to move you to bonds. But if you use 7 month relative strength (as you originally specified) stocks would have to decline around 20% to move you to bonds.
How are you reaching that conclusion? TBM's 7 month performance is up slightly (+4.77% in PV), so stocks' relative performance would only need to fall below that.
tadamsmar wrote:
Wed Feb 12, 2020 12:17 pm
Given that the title of this thread is "My trend following strategy..." and given that you are the author of this thread, shouldn't you be informing people of your actual trend following strategy?
I did very clearly in the OP.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Wed Feb 12, 2020 2:31 pm

willthrill81 wrote:
Wed Feb 12, 2020 12:25 pm
tadamsmar wrote:
Wed Feb 12, 2020 12:17 pm
Let's say the the UER signal turns on in March. If you use the 7 MMA then stocks would have to decline around 10% to move you to bonds. But if you use 7 month relative strength (as you originally specified) stocks would have to decline around 20% to move you to bonds.
How are you reaching that conclusion? TBM's 7 month performance is up slightly (+4.77% in PV), so stocks' relative performance would only need to fall below that.
To explain the problem I need to point you to what you deleted from my message. The poster said this:
Example, equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund.
You said that the poster was correct. But please read what read what the poster said closely. That is not the definition of "relative performance" that you are using.

7 month performance is not equal to current price minus 7 MMA. I assume "7 MMA" means "7 month moving average"

His math is:

100*(current equity index price - 7 MMA of equity index)/(7 MMA of equity index) = -3%
100*(current TBM price - 7 MMA of TBM)/(7 MMA of TBM) = -0.5%

This is not the correct math for relative performance.

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BlueEars
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Re: My trend following strategy and experience

Post by BlueEars » Wed Feb 12, 2020 2:36 pm

Why do I feel that this is getting a little unpleasantly contentious? Perhaps it is the way these queries are worded?

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Wed Feb 12, 2020 3:04 pm

BlueEars wrote:
Wed Feb 12, 2020 2:36 pm
Why do I feel that this is getting a little unpleasantly contentious? Perhaps it is the way these queries are worded?
I feel the same.

To be honest, I've come pretty close to abandoning this thread. I don't believe that I will right now, but I will stop responding to posts that come across as being antagonistic.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Always passive
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Re: My trend following strategy and experience

Post by Always passive » Wed Feb 12, 2020 3:24 pm

willthrill81 wrote:
Wed Feb 12, 2020 3:04 pm
BlueEars wrote:
Wed Feb 12, 2020 2:36 pm
Why do I feel that this is getting a little unpleasantly contentious? Perhaps it is the way these queries are worded?
I feel the same.

To be honest, I've come pretty close to abandoning this thread. I don't believe that I will right now, but I will stop responding to posts that come across as being antagonistic.
Keep the good work. You have chosen a subject that may not be consistent with the main philosophy of Bogleheads, and that may bother some. But how can we make progress if we do not get out of the box!

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Wed Feb 12, 2020 4:28 pm

tadamsmar wrote:
Wed Feb 12, 2020 12:17 pm
willthrill81 wrote:
Tue Feb 11, 2020 9:22 pm
BlueEars wrote:
Tue Feb 11, 2020 9:19 pm
Busdrvr wrote:
Tue Feb 11, 2020 9:04 pm

I appreciate the clarification as the statement “the 7 MMA is stronger than that of stocks” has been gnawing at me. As someone who likes to know how stuff works I just couldn’t wrap my mind around how this comparison could be made. Progress.
I was wondering the same thing. First, the 7 MMA is above the absolute value of the equity index indicating a sell signal assuming bonds beat this. Usually the 7 MMA of the bonds would be below the value of the bond fund in an equity selloff. If not, one might compare the two in percentage terms.

Example, equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund.
You've got it, assuming of course that the UER signal is 'on'.
Let's say the the UER signal turns on in March. If you use the 7 MMA then stocks would have to decline around 10% to move you to bonds. But if you use 7 month relative strength (as you originally specified) stocks would have to decline around 20% to move you to bonds.
Let me clarify this further with a example.

Suppose an equity index fund grew steadily from 100 to 120 over a 7 month period.
Suppose TBM grew steadily from 100 to 104 over the same 7 month period.

The 7 MMA of the equity fund is 110.
The 7 MMA of TBM is 102

Now, suppose the UER is below it's 12 MMA.

And suppose the equity fund loses 10% of it's value in one day, dropping to 108.

And suppose willthrill81 is at his monthly decision point. Suppose he only has this one equity fund to consider with this
fiduciary.

Does willthrill81's strategy require that he sell the equity fund?

The fund's 7 month return is 8% and TBM's return is 4%. The equity fund has the better 7 month performance.

But willthrill81 says BlueEars' example is correct: "equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund."

In our example, the equity index fund is about 2% below it's 7 MMA and the TBM bond fund is about 2% above it's 7 MMA.

So, based on BlueEars' example: Sell!

But in the OP, willthrill81 says:
To put it simply, this system calls me to own stocks unless both (1) the U.S. unemployment rate (UER) is above its 12 month moving average and (2) all available stock indexes have had lower performance than that of bond indexes over the prior 7 months (the Philosophical Economist used the 10 month moving average, which is roughly analogous to the widely used 200 day moving average, but I prefer the 7 month moving average as it reacts more quickly to changes in the trend, although I don't expect a significant difference between the two over time as backtesting has shown results to be fairly stable over the long-term from a 3 month moving average out to beyond 1 year)
The equity fund has higher performance than bonds over the prior 7 months.

Based on the OP: Hold!

But, wait a minute. In that quoted section he starts talking about how he prefers the 7 month moving average. Does he somehow use the 7 MMA in the performance analysis?

Lee_WSP
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Re: My trend following strategy and experience

Post by Lee_WSP » Wed Feb 12, 2020 4:41 pm

tadamsmar wrote:
Wed Feb 12, 2020 4:28 pm
tadamsmar wrote:
Wed Feb 12, 2020 12:17 pm
willthrill81 wrote:
Tue Feb 11, 2020 9:22 pm
BlueEars wrote:
Tue Feb 11, 2020 9:19 pm
Busdrvr wrote:
Tue Feb 11, 2020 9:04 pm

I appreciate the clarification as the statement “the 7 MMA is stronger than that of stocks” has been gnawing at me. As someone who likes to know how stuff works I just couldn’t wrap my mind around how this comparison could be made. Progress.
I was wondering the same thing. First, the 7 MMA is above the absolute value of the equity index indicating a sell signal assuming bonds beat this. Usually the 7 MMA of the bonds would be below the value of the bond fund in an equity selloff. If not, one might compare the two in percentage terms.

Example, equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund.
You've got it, assuming of course that the UER signal is 'on'.
Let's say the the UER signal turns on in March. If you use the 7 MMA then stocks would have to decline around 10% to move you to bonds. But if you use 7 month relative strength (as you originally specified) stocks would have to decline around 20% to move you to bonds.
Let me clarify this further with a example.

Suppose an equity index fund grew steadily from 100 to 120 over a 7 month period.
Suppose TBM grew steadily from 100 to 104 over the same 7 month period.

The 7 MMA of the equity fund is 110.
The 7 MMA of TBM is 102

Now, suppose the UER is below it's 12 MMA.

And suppose the equity fund loses 10% of it's value in one day, dropping to 108.

And suppose willthrill81 is at his monthly decision point. Suppose he only has this one equity fund to consider with this
fiduciary.

Does willthrill81's strategy require that he sell the equity fund?

The fund's 7 month return is 8% and TBM's return is 4%. The equity fund has the better 7 month performance.

But willthrill81 says BlueEars' example is correct: "equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund."

In our example, the equity index fund is about 2% below it's 7 MMA and the TBM bond fund is about 2% above it's 7 MMA.

So, based on BlueEars' example: Sell!

But in the OP, willthrill81 says:
To put it simply, this system calls me to own stocks unless both (1) the U.S. unemployment rate (UER) is above its 12 month moving average and (2) all available stock indexes have had lower performance than that of bond indexes over the prior 7 months (the Philosophical Economist used the 10 month moving average, which is roughly analogous to the widely used 200 day moving average, but I prefer the 7 month moving average as it reacts more quickly to changes in the trend, although I don't expect a significant difference between the two over time as backtesting has shown results to be fairly stable over the long-term from a 3 month moving average out to beyond 1 year)
The equity fund has higher performance than bonds over the prior 7 months.

Based on the OP: Hold!

But, wait a minute. In that quoted section he starts talking about how he prefers the 7 month moving average. Does he somehow use the 7 MMA in the performance analysis?
I don't understand your confusion. I don't think you understand how the relative strength timing model works. Both of OP's statements are consistent with using a relative strength timing model.

If UER < 12 MMA, he's in stocks.

If UER > 12 MMA && stocks 7 month RS > bonds 7 month RS; then OP is still in stocks.

If UER > 12 MMA && stocks 7 month RS < bonds 7 month RS; then OP moves over to bonds.

Barsoom
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Re: My trend following strategy and experience

Post by Barsoom » Wed Feb 12, 2020 5:43 pm

tadamsmar wrote:
Wed Feb 12, 2020 4:28 pm

The equity fund has higher performance than bonds over the prior 7 months.

Based on the OP: Hold!

But, wait a minute. In that quoted section he starts talking about how he prefers the 7 month moving average. Does he somehow use the 7 MMA in the performance analysis?
Forgive me if I'm speaking out of turn, but let me remind all that the original article in the OP upon which this thread is based is "trend following" to anticipate a bear market recession, not necessarily to predict which asset class will outperform the other.

The EUR signal was the highest of seven related signals that historically predated a big market collapse (hence the "trend"). The S&P 500 crossing its 7MMA is the indicator that the market is falling. When this happens AND the other signals are "on," the trend is to exit the equity market before it troughs, and reenter the equity market after it bottoms (signaled by the S&P recrossing its 7MMA AND the signals turning "off").

-B

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Wed Feb 12, 2020 6:13 pm

Lee_WSP wrote:
Wed Feb 12, 2020 4:41 pm
I don't understand your confusion. I don't think you understand how the relative strength timing model works. Both of OP's statements are consistent with using a relative strength timing model.

If UER < 12 MMA, he's in stocks.

If UER > 12 MMA && stocks 7 month RS > bonds 7 month RS; then OP is still in stocks.

If UER > 12 MMA && stocks 7 month RS < bonds 7 month RS; then OP moves over to bonds.
Thanks for trying to help. I thought I understood it until some of the recent posts.

What is the formula for the calculation of the RS of a fund?

The OP obviously does not use two contradictory relative strength timing models. Which one does he use?
Last edited by tadamsmar on Wed Feb 12, 2020 6:54 pm, edited 2 times in total.

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Wed Feb 12, 2020 6:17 pm

Barsoom wrote:
Wed Feb 12, 2020 5:43 pm
tadamsmar wrote:
Wed Feb 12, 2020 4:28 pm

The equity fund has higher performance than bonds over the prior 7 months.

Based on the OP: Hold!

But, wait a minute. In that quoted section he starts talking about how he prefers the 7 month moving average. Does he somehow use the 7 MMA in the performance analysis?
Forgive me if I'm speaking out of turn, but let me remind all that the original article in the OP upon which this thread is based is "trend following" to anticipate a bear market recession, not necessarily to predict which asset class will outperform the other.

The EUR signal was the highest of seven related signals that historically predated a big market collapse (hence the "trend"). The S&P 500 crossing its 7MMA is the indicator that the market is falling. When this happens AND the other signals are "on," the trend is to exit the equity market before it troughs, and reenter the equity market after it bottoms (signaled by the S&P recrossing its 7MMA AND the signals turning "off").

-B
Thanks for trying to help me.

I am focused on merely trying to understand how one applies the specific trend following strategy that is the main topic of this thread.

Do I need to do research elsewhere to do that? Is it not easy enough to just state how to apply it here in this thread. Seems to me that there might be a quicker way to my goal.

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Wed Feb 12, 2020 6:30 pm

tadamsmar wrote:
Wed Feb 12, 2020 4:28 pm
tadamsmar wrote:
Wed Feb 12, 2020 12:17 pm
willthrill81 wrote:
Tue Feb 11, 2020 9:22 pm
BlueEars wrote:
Tue Feb 11, 2020 9:19 pm
Busdrvr wrote:
Tue Feb 11, 2020 9:04 pm

I appreciate the clarification as the statement “the 7 MMA is stronger than that of stocks” has been gnawing at me. As someone who likes to know how stuff works I just couldn’t wrap my mind around how this comparison could be made. Progress.
I was wondering the same thing. First, the 7 MMA is above the absolute value of the equity index indicating a sell signal assuming bonds beat this. Usually the 7 MMA of the bonds would be below the value of the bond fund in an equity selloff. If not, one might compare the two in percentage terms.

Example, equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund.
You've got it, assuming of course that the UER signal is 'on'.
Let's say the the UER signal turns on in March. If you use the 7 MMA then stocks would have to decline around 10% to move you to bonds. But if you use 7 month relative strength (as you originally specified) stocks would have to decline around 20% to move you to bonds.
Let me clarify this further with a example.

Suppose an equity index fund grew steadily from 100 to 120 over a 7 month period.
Suppose TBM grew steadily from 100 to 104 over the same 7 month period.

The 7 MMA of the equity fund is 110.
The 7 MMA of TBM is 102

Now, suppose the UER is below it's 12 MMA.

And suppose the equity fund loses 10% of it's value in one day, dropping to 108.

And suppose willthrill81 is at his monthly decision point. Suppose he only has this one equity fund to consider with this
fiduciary.

Does willthrill81's strategy require that he sell the equity fund?

The fund's 7 month return is 8% and TBM's return is 4%. The equity fund has the better 7 month performance.

But willthrill81 says BlueEars' example is correct: "equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund."

In our example, the equity index fund is about 2% below it's 7 MMA and the TBM bond fund is about 2% above it's 7 MMA.

So, based on BlueEars' example: Sell!

But in the OP, willthrill81 says:
To put it simply, this system calls me to own stocks unless both (1) the U.S. unemployment rate (UER) is above its 12 month moving average and (2) all available stock indexes have had lower performance than that of bond indexes over the prior 7 months (the Philosophical Economist used the 10 month moving average, which is roughly analogous to the widely used 200 day moving average, but I prefer the 7 month moving average as it reacts more quickly to changes in the trend, although I don't expect a significant difference between the two over time as backtesting has shown results to be fairly stable over the long-term from a 3 month moving average out to beyond 1 year)
The equity fund has higher performance than bonds over the prior 7 months.

Based on the OP: Hold!

But, wait a minute. In that quoted section he starts talking about how he prefers the 7 month moving average. Does he somehow use the 7 MMA in the performance analysis?
Yes, you're correct.

There is really no calculation when it comes to relative strength. You just compare the funds' performance over the prior 7 months. For instance, in my 401k, the LCG fund has had the strongest returns as a percent of any equity funds there, so I'm invested in that one.

If the UER signal was 'on' (above the 12 MMA), then I would only move into bonds if their performance as a percent was stronger than that of the equity funds over the prior 7 months.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Wed Feb 12, 2020 6:42 pm

willthrill81 wrote:
Wed Feb 12, 2020 6:30 pm
tadamsmar wrote:
Wed Feb 12, 2020 4:28 pm
tadamsmar wrote:
Wed Feb 12, 2020 12:17 pm
willthrill81 wrote:
Tue Feb 11, 2020 9:22 pm
BlueEars wrote:
Tue Feb 11, 2020 9:19 pm


I was wondering the same thing. First, the 7 MMA is above the absolute value of the equity index indicating a sell signal assuming bonds beat this. Usually the 7 MMA of the bonds would be below the value of the bond fund in an equity selloff. If not, one might compare the two in percentage terms.

Example, equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund.
You've got it, assuming of course that the UER signal is 'on'.
Let's say the the UER signal turns on in March. If you use the 7 MMA then stocks would have to decline around 10% to move you to bonds. But if you use 7 month relative strength (as you originally specified) stocks would have to decline around 20% to move you to bonds.
Let me clarify this further with a example.

Suppose an equity index fund grew steadily from 100 to 120 over a 7 month period.
Suppose TBM grew steadily from 100 to 104 over the same 7 month period.

The 7 MMA of the equity fund is 110.
The 7 MMA of TBM is 102

Now, suppose the UER is below it's 12 MMA.

And suppose the equity fund loses 10% of it's value in one day, dropping to 108.

And suppose willthrill81 is at his monthly decision point. Suppose he only has this one equity fund to consider with this
fiduciary.

Does willthrill81's strategy require that he sell the equity fund?

The fund's 7 month return is 8% and TBM's return is 4%. The equity fund has the better 7 month performance.

But willthrill81 says BlueEars' example is correct: "equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund."

In our example, the equity index fund is about 2% below it's 7 MMA and the TBM bond fund is about 2% above it's 7 MMA.

So, based on BlueEars' example: Sell!

But in the OP, willthrill81 says:
To put it simply, this system calls me to own stocks unless both (1) the U.S. unemployment rate (UER) is above its 12 month moving average and (2) all available stock indexes have had lower performance than that of bond indexes over the prior 7 months (the Philosophical Economist used the 10 month moving average, which is roughly analogous to the widely used 200 day moving average, but I prefer the 7 month moving average as it reacts more quickly to changes in the trend, although I don't expect a significant difference between the two over time as backtesting has shown results to be fairly stable over the long-term from a 3 month moving average out to beyond 1 year)
The equity fund has higher performance than bonds over the prior 7 months.

Based on the OP: Hold!

But, wait a minute. In that quoted section he starts talking about how he prefers the 7 month moving average. Does he somehow use the 7 MMA in the performance analysis?
Yes, you're correct.

There is really no calculation when it comes to relative strength. You just compare the funds' performance over the prior 7 months. For instance, in my 401k, the LCG fund has had the strongest returns as a percent of any equity funds there, so I'm invested in that one.
But calculating a return is a calculation. Comparing two returns is a calculation.

BlueEars presented a calculation involving MMA and you said it was correct.

I arrived at a contradictory signal and you tell me I am correct. This make no sense to me.
Last edited by tadamsmar on Wed Feb 12, 2020 6:45 pm, edited 1 time in total.

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Wed Feb 12, 2020 6:44 pm

tadamsmar wrote:
Wed Feb 12, 2020 6:42 pm
willthrill81 wrote:
Wed Feb 12, 2020 6:30 pm
tadamsmar wrote:
Wed Feb 12, 2020 4:28 pm
tadamsmar wrote:
Wed Feb 12, 2020 12:17 pm
willthrill81 wrote:
Tue Feb 11, 2020 9:22 pm


You've got it, assuming of course that the UER signal is 'on'.
Let's say the the UER signal turns on in March. If you use the 7 MMA then stocks would have to decline around 10% to move you to bonds. But if you use 7 month relative strength (as you originally specified) stocks would have to decline around 20% to move you to bonds.
Let me clarify this further with a example.

Suppose an equity index fund grew steadily from 100 to 120 over a 7 month period.
Suppose TBM grew steadily from 100 to 104 over the same 7 month period.

The 7 MMA of the equity fund is 110.
The 7 MMA of TBM is 102

Now, suppose the UER is below it's 12 MMA.

And suppose the equity fund loses 10% of it's value in one day, dropping to 108.

And suppose willthrill81 is at his monthly decision point. Suppose he only has this one equity fund to consider with this
fiduciary.

Does willthrill81's strategy require that he sell the equity fund?

The fund's 7 month return is 8% and TBM's return is 4%. The equity fund has the better 7 month performance.

But willthrill81 says BlueEars' example is correct: "equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund."

In our example, the equity index fund is about 2% below it's 7 MMA and the TBM bond fund is about 2% above it's 7 MMA.

So, based on BlueEars' example: Sell!

But in the OP, willthrill81 says:
To put it simply, this system calls me to own stocks unless both (1) the U.S. unemployment rate (UER) is above its 12 month moving average and (2) all available stock indexes have had lower performance than that of bond indexes over the prior 7 months (the Philosophical Economist used the 10 month moving average, which is roughly analogous to the widely used 200 day moving average, but I prefer the 7 month moving average as it reacts more quickly to changes in the trend, although I don't expect a significant difference between the two over time as backtesting has shown results to be fairly stable over the long-term from a 3 month moving average out to beyond 1 year)
The equity fund has higher performance than bonds over the prior 7 months.

Based on the OP: Hold!

But, wait a minute. In that quoted section he starts talking about how he prefers the 7 month moving average. Does he somehow use the 7 MMA in the performance analysis?
Yes, you're correct.

There is really no calculation when it comes to relative strength. You just compare the funds' performance over the prior 7 months. For instance, in my 401k, the LCG fund has had the strongest returns as a percent of any equity funds there, so I'm invested in that one.
But calculating a return is a calculation. Comparing two returns is a calculation.

BlueEars presented a calculation involving MMA and you said it was correct.
Yes, returns must be calculated, but several sites do this. I'm now using Morningstar, which provides identical returns to those in Portfolio Visualizer.

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

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Re: My trend following strategy and experience

Post by tadamsmar » Wed Feb 12, 2020 6:47 pm

willthrill81 wrote:
Wed Feb 12, 2020 6:44 pm
tadamsmar wrote:
Wed Feb 12, 2020 6:42 pm
willthrill81 wrote:
Wed Feb 12, 2020 6:30 pm
tadamsmar wrote:
Wed Feb 12, 2020 4:28 pm
tadamsmar wrote:
Wed Feb 12, 2020 12:17 pm


Let's say the the UER signal turns on in March. If you use the 7 MMA then stocks would have to decline around 10% to move you to bonds. But if you use 7 month relative strength (as you originally specified) stocks would have to decline around 20% to move you to bonds.
Let me clarify this further with a example.

Suppose an equity index fund grew steadily from 100 to 120 over a 7 month period.
Suppose TBM grew steadily from 100 to 104 over the same 7 month period.

The 7 MMA of the equity fund is 110.
The 7 MMA of TBM is 102

Now, suppose the UER is below it's 12 MMA.

And suppose the equity fund loses 10% of it's value in one day, dropping to 108.

And suppose willthrill81 is at his monthly decision point. Suppose he only has this one equity fund to consider with this
fiduciary.

Does willthrill81's strategy require that he sell the equity fund?

The fund's 7 month return is 8% and TBM's return is 4%. The equity fund has the better 7 month performance.

But willthrill81 says BlueEars' example is correct: "equity index is 3% below it's 7 MMA. Bonds are maybe 0.5% below their 7 MMA. Bonds win and you move to the bond fund."

In our example, the equity index fund is about 2% below it's 7 MMA and the TBM bond fund is about 2% above it's 7 MMA.

So, based on BlueEars' example: Sell!

But in the OP, willthrill81 says:
To put it simply, this system calls me to own stocks unless both (1) the U.S. unemployment rate (UER) is above its 12 month moving average and (2) all available stock indexes have had lower performance than that of bond indexes over the prior 7 months (the Philosophical Economist used the 10 month moving average, which is roughly analogous to the widely used 200 day moving average, but I prefer the 7 month moving average as it reacts more quickly to changes in the trend, although I don't expect a significant difference between the two over time as backtesting has shown results to be fairly stable over the long-term from a 3 month moving average out to beyond 1 year)
The equity fund has higher performance than bonds over the prior 7 months.

Based on the OP: Hold!

But, wait a minute. In that quoted section he starts talking about how he prefers the 7 month moving average. Does he somehow use the 7 MMA in the performance analysis?
Yes, you're correct.

There is really no calculation when it comes to relative strength. You just compare the funds' performance over the prior 7 months. For instance, in my 401k, the LCG fund has had the strongest returns as a percent of any equity funds there, so I'm invested in that one.
But calculating a return is a calculation. Comparing two returns is a calculation.

BlueEars presented a calculation involving MMA and you said it was correct.
Yes, returns must be calculated, but several sites do this. I'm now using Morningstar, which provides identical returns to those in Portfolio Visualizer.

I've already said you were correct.
I arrived at a two contradictory signals and you tell me I am correct. This make no sense to me.

I would like for someone to present the proper calculation. One of my calculations has to be be incorrect.

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Re: My trend following strategy and experience

Post by Barsoom » Wed Feb 12, 2020 7:20 pm

tadamsmar wrote:
Wed Feb 12, 2020 6:17 pm

Thanks for trying to help me.

I am focused on merely trying to understand how one applies the specific trend following strategy that is the main topic of this thread.

Do I need to do research elsewhere to do that? Is it not easy enough to just state how to apply it here in this thread. Seems to me that there might be a quicker way to my goal.
My understanding was that it was a narrowing of the article linked in the OP. Read the articles to understand.

The only differences were:
  1. that only the EUR signal was being used.
  2. that the S&P 500 7MMA was being used instead of a 9 or 10 MMA.
This may have changed in the 26 pages since it began, but the original linked article strategy was simply in/out of stocks based on the signals turning on and the S&P 500 crossing its 200-day moving average.

-B

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Re: My trend following strategy and experience

Post by willthrill81 » Wed Feb 12, 2020 8:05 pm

tadamsmar wrote:
Wed Feb 12, 2020 6:47 pm
I arrived at a two contradictory signals and you tell me I am correct. This make no sense to me.

I would like for someone to present the proper calculation. One of my calculations has to be be incorrect.
In the instance you provided, I would continue holding 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 tadamsmar » Wed Feb 12, 2020 8:23 pm

willthrill81 wrote:
Wed Feb 12, 2020 8:05 pm
tadamsmar wrote:
Wed Feb 12, 2020 6:47 pm
I arrived at a two contradictory signals and you tell me I am correct. This make no sense to me.

I would like for someone to present the proper calculation. One of my calculations has to be be incorrect.
In the instance you provided, I would continue holding stocks.
OK, thank you!

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Re: My trend following strategy and experience

Post by tadamsmar » Wed Feb 12, 2020 8:24 pm

Barsoom wrote:
Wed Feb 12, 2020 7:20 pm
tadamsmar wrote:
Wed Feb 12, 2020 6:17 pm

Thanks for trying to help me.

I am focused on merely trying to understand how one applies the specific trend following strategy that is the main topic of this thread.

Do I need to do research elsewhere to do that? Is it not easy enough to just state how to apply it here in this thread. Seems to me that there might be a quicker way to my goal.
My understanding was that it was a narrowing of the article linked in the OP. Read the articles to understand.

The only differences were:
  1. that only the EUR signal was being used.
  2. that the S&P 500 7MMA was being used instead of a 9 or 10 MMA.
This may have changed in the 26 pages since it began, but the original linked article strategy was simply in/out of stocks based on the signals turning on and the S&P 500 crossing its 200-day moving average.

-B
Apparently the signal he actually uses does not use the 7MMA of stocks. It just uses the 7 month percentage return.

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Re: My trend following strategy and experience

Post by Barsoom » Wed Feb 12, 2020 9:12 pm

tadamsmar wrote:
Wed Feb 12, 2020 8:24 pm
Apparently the signal he actually uses does not use the 7MMA of stocks. It just uses the 7 month percentage return.
So, to be clear...

Generally speaking of the original linked article strategy, if the EOM closing price of the S&P 500 goes below the 7MMA of EOM closing S&P 500 prices, the indicator triggers "on."

As a shorthand convenience, one can say what the percent above/below the 7MMA that the closing S&P 500 price is currently at (or the last EOM closing price). This is useful to say how close or far the S&P 500 is from triggering. I thought this is what willthrill81 was doing.

This is not the same thing as the percent change between the most recent EOM closing S&P 500 price and the EOM closing S&P 500 price from 7 months ago. I didn't think that's what willthrill81 was using, but it might have creeped into the conversation at some point while trying to clarify other points (possibly how much gain/loss occurred from whipsaws, and the calculation errors that were brought up). I could be wrong about where it came from, but I didn't think it was a part of the strategy.

Still, the trend following strategy is about exiting equities before a bear market recession crash and reentering as the recovery begins, and the indicators that were discussed over the course of 26 pages were trended to that goal based on the series of linked articles in the OP, not trended to optimal asset allocation performance.

-B

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Re: My trend following strategy and experience

Post by tadamsmar » Wed Feb 12, 2020 9:15 pm

Barsoom wrote:
Wed Feb 12, 2020 9:12 pm
tadamsmar wrote:
Wed Feb 12, 2020 8:24 pm
Apparently the signal he actually uses does not use the 7MMA of stocks. It just uses the 7 month percentage return.
So, to be clear...

Generally speaking of the original linked article strategy, if the EOM closing price of the S&P 500 goes below the 7MMA of EOM closing S&P 500 prices, the indicator triggers "on."

As a shorthand convenience, one can say what the percent above/below the 7MMA that the closing S&P 500 price is currently at (or the last EOM closing price). This is useful to say how close or far the S&P 500 is from triggering. I thought this is what willthrill81 was doing.

This is not the same thing as the percent change between the most recent EOM closing S&P 500 price and the EOM closing S&P 500 price from 7 months ago. I didn't think that's what willthrill81 was using, but it might have creeped into the conversation at some point while trying to clarify other points (possibly how much gain/loss occurred from whipsaws, and the calculation errors that were brought up). I could be wrong about where it came from, but I didn't think it was a part of the strategy.

Still, the trend following strategy is about exiting equities before a bear market recession crash and reentering as the recovery begins, and the indicators that were discussed over the course of 26 pages were trended to that goal based on the series of linked articles in the OP, not trended to optimal asset allocation performance.

-B
I think he just uses this definition of relative strength:

https://corporatefinanceinstitute.com/r ... ength-rps/

I can infer that he is not using percent above/below 7 mma based on what he said about my recent examples.

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Re: My trend following strategy and experience

Post by Barsoom » Wed Feb 12, 2020 10:12 pm

tadamsmar wrote:
Wed Feb 12, 2020 9:15 pm
I think he just uses this definition of relative strength:

https://corporatefinanceinstitute.com/r ... ength-rps/

I can infer that he is not using percent above/below 7 mma based on what he said about my recent examples.
Interesting, but relative strength against what?

According to your link, relative strength is a comparison of a stock to the overall market.

The strategy in the OP is clear: This trimmed down version of the strategy has two indicators, the S&P 500 and the unemployment rate.

S&P 500 is compared to the moving average (7 or 9), unemployment is compared to the TTM. When the S&P 500 is below its 7MMA and unemployment is above its TTM, the strategy triggers.

Are you suggesting that the strategy is comparing the percent change of the S&P 500 to the percent change of the unemployment rate? Something else? Because that's not what the OP article strategy laid out.

-B

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Re: My trend following strategy and experience

Post by tadamsmar » Wed Feb 12, 2020 10:30 pm

Barsoom wrote:
Wed Feb 12, 2020 10:12 pm
tadamsmar wrote:
Wed Feb 12, 2020 9:15 pm
I think he just uses this definition of relative strength:

https://corporatefinanceinstitute.com/r ... ength-rps/

I can infer that he is not using percent above/below 7 mma based on what he said about my recent examples.
Interesting, but relative strength against what?

According to your link, relative strength is a comparison of a stock to the overall market.

The strategy in the OP is clear: This trimmed down version of the strategy has two indicators, the S&P 500 and the unemployment rate.

S&P 500 is compared to the moving average (7 or 9), unemployment is compared to the TTM. When the S&P 500 is below its 7MMA and unemployment is above its TTM, the strategy triggers.

Are you suggesting that the strategy is comparing the percent change of the S&P 500 to the percent change of the unemployment rate? Something else? Because that's not what the OP article strategy laid out.

-B
I am suggesting that the strategy is comparing the percent change of the S&P 500 to the percent change in the Total Bond Market Index Fund.

A relative strength that is a comparison of a stock index to the Total Bond Index.

I think we probably agree on the unemployment indicator that he is using.

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Re: My trend following strategy and experience

Post by Busdrvr » Wed Feb 12, 2020 10:36 pm

I think he is using something similar to what is done at muscular portfolios and the papa bear portfolio. There they just choose the top three asset classes with the highest averages of the 3,6, and 12 month performance(gain).

For Willthrill, If the UE trigger is on, willthrill stays in his available equity class unless the 7 month performance of bonds exceeds all available equity classes.

Injecting the term “moving average” is not really relevant here especially as many timing strategies use price below a MA as the trigger for exiting equities.
Last edited by Busdrvr on Thu Feb 13, 2020 10:23 am, edited 1 time in total.

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Re: My trend following strategy and experience

Post by Barsoom » Thu Feb 13, 2020 2:30 am

tadamsmar wrote:
Wed Feb 12, 2020 10:30 pm
I am suggesting that the strategy is comparing the percent change of the S&P 500 to the percent change in the Total Bond Market Index Fund.
That has absolutely nothing to do with the articles linked in the OP which inspired this thread. I'd be surprised if that is the strategy being used here, because it doesn't track with the first 20+ pages of this thread, and would make no sense to link those articles if that were the strategy.

Did you actually read the articles? If so, you'd have the context for this thread.

I suppose we will have to wait for willthrill81 to say for sure.

-B

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Re: My trend following strategy and experience

Post by tadamsmar » Thu Feb 13, 2020 8:21 am

Barsoom wrote:
Thu Feb 13, 2020 2:30 am
tadamsmar wrote:
Wed Feb 12, 2020 10:30 pm
I am suggesting that the strategy is comparing the percent change of the S&P 500 to the percent change in the Total Bond Market Index Fund.
That has absolutely nothing to do with the articles linked in the OP which inspired this thread. I'd be surprised if that is the strategy being used here, because it doesn't track with the first 20+ pages of this thread, and would make no sense to link those articles if that were the strategy.

Did you actually read the articles? If so, you'd have the context for this thread.

I suppose we will have to wait for willthrill81 to say for sure.

-B
I have read about his calculations from various sources, including the OP's comments on this thread.

The OP says here that he currently uses Morningstar for calculations:

"Yes, returns must be calculated, but several sites do this. I'm now using Morningstar, which provides identical returns to those in Portfolio Visualizer."

viewtopic.php?f=10&t=270035&p=5018438#p5017869

Here is Morningstar's definition of relative strength to the SP500:

http://awgmain.morningstar.com/webhelp/ ... r_One.html

but he uses relative strength to VBMFX.

Here he says that he previously used PV to calculate relative strength:

"I didn't specify it in the OP, but if VBMFX has had higher relative strength (as measured by PV, the tool I'm using rather than calculating all of this manually; consult it if you want more details on the specifics) than all of my available stock indices (in addition, of course, to the UER being above its 12 MMA), I will move into fixed income."

viewtopic.php?f=10&t=270035&p=4358177&h ... h#p4358177

I think he switched to Morningstar because PV added some fees.

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Re: My trend following strategy and experience

Post by Lee_WSP » Thu Feb 13, 2020 10:45 am

Lee_WSP wrote:
Wed Feb 12, 2020 4:41 pm
tadamsmar wrote:
Wed Feb 12, 2020 4:28 pm
I don't understand your confusion. I don't think you understand how the relative strength timing model works. Both of OP's statements are consistent with using a relative strength timing model.

If UER < 12 MMA, he's in stocks.

If UER > 12 MMA && stocks 7 month RS > bonds 7 month RS; then OP is still in stocks.

If UER > 12 MMA && stocks 7 month RS < bonds 7 month RS; then OP moves over to bonds.
Stop letting other people confuse you. His strategy is exactly as I have posted plus or minus some minor tweaks.

Relative strength is to compare the percentage gain this month against what the asset was at 7 months ago. (stocks today - stocks 7 months ago)/7 months vs (bonds today - bonds 7 months ago)/bonds 7 months ago.

The original article uses the 10mma as the timing signal, but OP is using relative strength.

AFAIK, OP is not using the 10mma, or if he is, he's using it as a second trigger.

If he is using it then it would look like this:

If UER < 12 MMA, he's in stocks.

If UER > 12 MMA && stocks 10MMA, proceed to relative strength analysis below

If UER > 12 MMA && stocks 7 month RS > bonds 7 month RS; then OP is still in stocks.

If UER > 12 MMA && stocks 7 month RS < bonds 7 month RS; then OP moves over to bonds.

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Re: My trend following strategy and experience

Post by tadamsmar » Thu Feb 13, 2020 11:13 am

Lee_WSP wrote:
Thu Feb 13, 2020 10:45 am
Lee_WSP wrote:
Wed Feb 12, 2020 4:41 pm
tadamsmar wrote:
Wed Feb 12, 2020 4:28 pm
I don't understand your confusion. I don't think you understand how the relative strength timing model works. Both of OP's statements are consistent with using a relative strength timing model.

If UER < 12 MMA, he's in stocks.

If UER > 12 MMA && stocks 7 month RS > bonds 7 month RS; then OP is still in stocks.

If UER > 12 MMA && stocks 7 month RS < bonds 7 month RS; then OP moves over to bonds.
Stop letting other people confuse you. His strategy is exactly as I have posted plus or minus some minor tweaks.

Relative strength is to compare the percentage gain this month against what the asset was at 7 months ago. (stocks today - stocks 7 months ago)/7 months vs (bonds today - bonds 7 months ago)/bonds 7 months ago.

The original article uses the 10mma as the timing signal, but OP is using relative strength.

AFAIK, OP is not using the 10mma, or if he is, he's using it as a second trigger.

If he is using it then it would look like this:

If UER < 12 MMA, he's in stocks.

If UER > 12 MMA && stocks 10MMA, proceed to relative strength analysis below

If UER > 12 MMA && stocks 7 month RS > bonds 7 month RS; then OP is still in stocks.

If UER > 12 MMA && stocks 7 month RS < bonds 7 month RS; then OP moves over to bonds.
I think you are correct.

(And I don't think he uses the variant that includes 10 MMA.)

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Re: My trend following strategy and experience

Post by Busdrvr » Thu Feb 13, 2020 11:47 am

From just over a year ago
willthrill81 wrote:
Fri Feb 01, 2019 8:04 pm
nps wrote:
Fri Feb 01, 2019 7:58 pm
Did you get back into stocks? Is emerging markets one of the indices you track?
No, I'm still out of stocks. The UER increased to 4.0%, which is still above its 12 MMA of 3.88%, and all of my available stock funds are also below their 7 MMA.
Maybe this post doesn’t fully explain the process.

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Re: My trend following strategy and experience

Post by willthrill81 » Thu Feb 13, 2020 12:08 pm

Busdrvr wrote:
Thu Feb 13, 2020 11:47 am
From just over a year ago
willthrill81 wrote:
Fri Feb 01, 2019 8:04 pm
nps wrote:
Fri Feb 01, 2019 7:58 pm
Did you get back into stocks? Is emerging markets one of the indices you track?
No, I'm still out of stocks. The UER increased to 4.0%, which is still above its 12 MMA of 3.88%, and all of my available stock funds are also below their 7 MMA.
Maybe this post doesn’t fully explain the process.
Yes, I should have specified that stocks' relative strength over the prior 7 months was below that of bonds.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: My trend following strategy and experience

Post by Busdrvr » Thu Feb 13, 2020 12:46 pm

willthrill81 wrote:
Thu Feb 13, 2020 12:08 pm
Busdrvr wrote:
Thu Feb 13, 2020 11:47 am
From just over a year ago
willthrill81 wrote:
Fri Feb 01, 2019 8:04 pm
nps wrote:
Fri Feb 01, 2019 7:58 pm
Did you get back into stocks? Is emerging markets one of the indices you track?
No, I'm still out of stocks. The UER increased to 4.0%, which is still above its 12 MMA of 3.88%, and all of my available stock funds are also below their 7 MMA.
Maybe this post doesn’t fully explain the process.
Yes, I should have specified that stocks' relative strength over the prior 7 months was below that of bonds.
Perfect, thank you for the clarification!

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Re: My trend following strategy and experience

Post by petulant » Thu Feb 13, 2020 12:46 pm

Thanks to all the many posters who have contributed over the last few weeks! Certainly has been contentious at times, but the content is still very interesting and informative.

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Re: My trend following strategy and experience

Post by hilink73 » Sat Feb 15, 2020 6:26 pm

Just some Python/pandas DataReader testing.
Would be great to have that as AWS Lamda...

Image

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Re: My trend following strategy and experience

Post by willthrill81 » Sat Feb 15, 2020 6:51 pm

hilink73 wrote:
Sat Feb 15, 2020 6:26 pm
Just some Python/pandas DataReader testing.
Would be great to have that as AWS Lamda...

Image
Nice visual.

It seems quite likely that the UER will cross above its 12 MMA in the near future. I'm having a hard time seeing it drop even further, though that is certainly possible.
“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 » Sat Feb 15, 2020 7:30 pm

I personally prefer to use the slope of the moving average rather than the cross, especially when the slope is so flat.

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Re: My trend following strategy and experience

Post by willthrill81 » Sat Feb 15, 2020 7:34 pm

Hydromod wrote:
Sat Feb 15, 2020 7:30 pm
I personally prefer to use the slope of the moving average rather than the cross, especially when the slope is so flat.
To clarify, are you referring to the moving average having an upward slope?
“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 » Sat Feb 15, 2020 7:41 pm

willthrill81 wrote:
Sat Feb 15, 2020 7:34 pm
Hydromod wrote:
Sat Feb 15, 2020 7:30 pm
I personally prefer to use the slope of the moving average rather than the cross, especially when the slope is so flat.
To clarify, are you referring to the moving average having an upward slope?
Upward slope and accelerating. Once it starts decelerating, that’s been about the bottom of the dip.

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Re: My trend following strategy and experience

Post by willthrill81 » Sat Feb 15, 2020 7:53 pm

Hydromod wrote:
Sat Feb 15, 2020 7:41 pm
willthrill81 wrote:
Sat Feb 15, 2020 7:34 pm
Hydromod wrote:
Sat Feb 15, 2020 7:30 pm
I personally prefer to use the slope of the moving average rather than the cross, especially when the slope is so flat.
To clarify, are you referring to the moving average having an upward slope?
Upward slope and accelerating. Once it starts decelerating, that’s been about the bottom of the dip.
Would you describe what you are describing in a formula?
“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 » Sat Feb 15, 2020 8:04 pm

Sounds like the first and second derivatives are positive.

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Re: My trend following strategy and experience

Post by Hydromod » Sat Feb 15, 2020 8:17 pm

willthrill81 wrote:
Sat Feb 15, 2020 7:53 pm
Hydromod wrote:
Sat Feb 15, 2020 7:41 pm
willthrill81 wrote:
Sat Feb 15, 2020 7:34 pm
Hydromod wrote:
Sat Feb 15, 2020 7:30 pm
I personally prefer to use the slope of the moving average rather than the cross, especially when the slope is so flat.
To clarify, are you referring to the moving average having an upward slope?
Upward slope and accelerating. Once it starts decelerating, that’s been about the bottom of the dip.
Would you describe what you are describing in a formula?
I think I explained it in the Refinements thread, and showed some backtesting.

Basically if x0, x1, and x2 are the latest, previous, and 2nd previous values of the moving average,

s = d(x)/dt
a = d(s)/dt

s0 = (x0 - x1)/dt
s1 = (x1 - x2)/dt
a = (s0 - s1)/dt

where s is slope, a is acceleration, and dt is the time step. Assume dt = 1 for simplicity.

so a = (x0 - x1) - (x1 - x2) = x0 - 2 x1 + x2.

if s0 > 0 and a > 0, this is the signal to beware on equities. This is corresponds to your precursor flag signalling when you pay attention to the equity moving average crossover flag.

In previous recessions, a has turned negative about at the bottom of the market, even though unemployment is still rising. Usually it led maximum unemployment by a good several months.

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Re: My trend following strategy and experience

Post by willthrill81 » Sat Feb 15, 2020 9:17 pm

Hydromod wrote:
Sat Feb 15, 2020 8:17 pm
willthrill81 wrote:
Sat Feb 15, 2020 7:53 pm
Hydromod wrote:
Sat Feb 15, 2020 7:41 pm
willthrill81 wrote:
Sat Feb 15, 2020 7:34 pm
Hydromod wrote:
Sat Feb 15, 2020 7:30 pm
I personally prefer to use the slope of the moving average rather than the cross, especially when the slope is so flat.
To clarify, are you referring to the moving average having an upward slope?
Upward slope and accelerating. Once it starts decelerating, that’s been about the bottom of the dip.
Would you describe what you are describing in a formula?
I think I explained it in the Refinements thread, and showed some backtesting.

Basically if x0, x1, and x2 are the latest, previous, and 2nd previous values of the moving average,

s = d(x)/dt
a = d(s)/dt

s0 = (x0 - x1)/dt
s1 = (x1 - x2)/dt
a = (s0 - s1)/dt

where s is slope, a is acceleration, and dt is the time step. Assume dt = 1 for simplicity.

so a = (x0 - x1) - (x1 - x2) = x0 - 2 x1 + x2.

if s0 > 0 and a > 0, this is the signal to beware on equities. This is corresponds to your precursor flag signalling when you pay attention to the equity moving average crossover flag.

In previous recessions, a has turned negative about at the bottom of the market, even though unemployment is still rising. Usually it led maximum unemployment by a good several months.
Thank you.

I wonder how much your strategy would differ from mine in terms of actual implementation. My guess is that they would be pretty similar in terms of when to move in and out, though your would probably move out later than mine. Of course, this isn't a bug; it just means that you're less likely to get whipsawed (but more likely to have a deeper drawdown).
“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

Hydromod
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Re: My trend following strategy and experience

Post by Hydromod » Sun Feb 16, 2020 12:01 am

willthrill81 wrote:
Sat Feb 15, 2020 9:17 pm
I wonder how much your strategy would differ from mine in terms of actual implementation. My guess is that they would be pretty similar in terms of when to move in and out, though your would probably move out later than mine. Of course, this isn't a bug; it just means that you're less likely to get whipsawed (but more likely to have a deeper drawdown).
I suspect it will be both later out and earlier in. Usually the market has lagged the start of the upswing by a few months, so delaying usually would have been beneficial. The earlier entry helps to catch the upswing, which also helps mitigate the drawdown. But it will take a leap of faith to trust the deceleration signal, I imagine.

Note that I would only be doing this with the UPRO/TMF approach, the main portfolio isn't really amenable to this.

I'm much less of an all or nothing guy myself. I like the risk parity approach with a risk budget, preferentially weighted to equities when the UEI signal is favorable and weighted to bonds otherwise. I plan to use this information to ramp down (and ramp up) the risk budget over several months, allowing it to backtrack if it reverses. It seemed like it was beneficial to pause one month after the UEI signal changed before initiating a portfolio change, which helped with whipsaws.

The other index I've been keeping an eye on is the Business Cycle Index. This index updates weekly.

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Sun Feb 16, 2020 12:31 am

Hydromod wrote:
Sun Feb 16, 2020 12:01 am
willthrill81 wrote:
Sat Feb 15, 2020 9:17 pm
I wonder how much your strategy would differ from mine in terms of actual implementation. My guess is that they would be pretty similar in terms of when to move in and out, though your would probably move out later than mine. Of course, this isn't a bug; it just means that you're less likely to get whipsawed (but more likely to have a deeper drawdown).
I suspect it will be both later out and earlier in. Usually the market has lagged the start of the upswing by a few months, so delaying usually would have been beneficial. The earlier entry helps to catch the upswing, which also helps mitigate the drawdown. But it will take a leap of faith to trust the deceleration signal, I imagine.

Note that I would only be doing this with the UPRO/TMF approach, the main portfolio isn't really amenable to this.

I'm much less of an all or nothing guy myself. I like the risk parity approach with a risk budget, preferentially weighted to equities when the UEI signal is favorable and weighted to bonds otherwise. I plan to use this information to ramp down (and ramp up) the risk budget over several months, allowing it to backtrack if it reverses. It seemed like it was beneficial to pause one month after the UEI signal changed before initiating a portfolio change, which helped with whipsaws.

The other index I've been keeping an eye on is the Business Cycle Index. This index updates weekly.
You might be right. Time will tell, but if you stick with it, I suspect that you'll be satisfied with the results.

I personally find the Conference Board LEI interesting. One academic study (I cannot recall which now, but it could be found pretty easily with Google) found that using the MA of the LEI for the S&P 500 resulted in both better returns and smaller drawdowns vs. buy-and-hold. Combining the LEI with the MA of the S&P 500 did even better.
“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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