Algokid

AVOIDING BEAR MARKETS WITH MARKET TIMING MODEL ( DAILY CHART)

AMEX:SPY   SPDR S&P 500 ETF
913 16 18
It's been almost two years since i publish this chart. The trade entered on 12/31/11 has a return of 54.79 % now ! This simple strategy has made a total return of 248.3 % vs . 75 % since 2002             .

Original chart here :

Avoiding Bear Markets with Market Timing Model ( daily chart)


Read about Buffet's opinion on index funds :

http://www.businessinsider.com/warren-buffett-recommends-sp-500-index-2014-3

Cheers

Algo
www.passivestor.com
Caesare
2 years ago
So how does it work?
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Algokid PRO Caesare
2 years ago
Very Simple

Buy SPY if above it's 200 MA at the end of the month

SELL SPY if below it's 200 MA at the end of the month

You could also use a monthly charts and use the 10 Month MA with the same rules.

That is it ! It's so simple and boring , that very few people use it. The Draw-down is at 18 % for the model vs 55 % ! for the SP 500.
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Algokid PRO
2 years ago
One could use this to decide when to get in and out of the market. I know, it's not perfect , no system is .The system won't get you in at the very bottom or get you out at the top, but you will capture some nice gains if patient and disciplined.
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timwest PRO Algokid
2 years ago
How did it do in the 1980's? When you look at monthly data, you have to look back a long time to see if it is really just a drawdown of 18%. My recollection is that it was a massive losing methodology in the late 1980's and all through until the mid 1990's. Again, it is just my recollection from my years as a technical analyst at a major firm publishing interesting research over the years.
+1 Reply
Algokid PRO timwest
2 years ago
Hi Tim

Will do a backtesting tonight from 1982 - 1992 ,and post the results here
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timwest PRO Algokid
2 years ago
1992 isn't the mid-1990's :-) Do you have all the data? Can you go all the way up to your first signal on the chart? See what the 1970's looked like too.
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dmespolet
2 years ago
I also like to KISS - Keep It Super Simple. I'm also curious to see what your back-testing reveals.
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Hi all,

Should the system not even during the 1980's period if a reasonable stop loss is added for trades that went pear shaped in the 1980's?

Speculation for stop loss:
a) Perhaps using ATR
b) Exit based on entry candle, meaning if the trade does not head in the right direction then nip it in the bud early. And just try again later.

I have looked at charts going back to 1950 for SP500 based just on the 200 SMA and EMA and they resoundingly worked, in fact when compounded the results were quite something.

I have also conducted the same exercise on CAC, DAX, FTSE, NIKKEI, TIMES, DIA, HANG SENG, and QQQ, going back 25 or 30 years.

All worked, Nikkei less so than others for obvious reasons.



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Algokid PRO HermanBrummer
2 years ago
Hi Herman
Hi Hernan

Definitely, this system can be improve by adding a few rules such as ATR for stop losses. I haven't tested this on other indices, but glad to know that the results are about the same.

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Algokid PRO
2 years ago
Hello

I only have Data from 1980 , Here's the bactesting result from May 1980 to March 1994 . For that period the model underperformed the market with return of 114.6 % vs. 161.85 % for the S&P. MAX DD was a brutal 56 % in 1987 ( black Monday) .


5/30/80 6/31/81 17.9
8/31/82 1/31/84 36.8
8/31/84 9/30/85 9.6
10/31/85 9/30/86 21.8
10/31/86 10/31/87 4.1
6/30/88 1/31/90 20.3
5/30/90 8/31/90 -12.0
1/31/91 11/29/91 9.1
12/31/91 3/31/94 6.9
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HermanBrummer PRO Algokid
2 years ago
Hi Algokid,

Some great work, very interesting indeed, I love this type of stuff.

This is a presentation an investor called Tom, he basically also suggest using the same system, but in this case the example he gave was based on FX. He also shows examples using a 200 SMA and then trades on the pullbacks, using a one candle stop loss.

https://www.youtube.com/watch?v=B67apgoEBs4&index=6&list=FLLbIUcRB9MQiDTf6hO_98YA

That solves the black Monday issue, and hopefull Black Swans too. Also for indices specially most of the time, around 95% of the time they don't drop more than -3% on a given day so, an ON DAY -3% stop loss would also be help full.

While this system is effective and certainly works, a shorter MA or rather EMA e.g. between 20 - 60 will most likely be more efficient, not because the signals will be better but simply because it will get out sooner and get in sooner again thus compounded much more efficiently irrespective of a signal quality deterioration.

This is what I think at a least, I would be interested to hear what your take is on a shorter time frames.

PS,



if you simply applied a very small -5% on day loss maximum to your system, I am sure you would find that the results would very good indeed.

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Algokid PRO HermanBrummer
2 years ago
Hi Herman

Thanks for the link and stop loss recommendation. I will implement it and see how the returns improve. Thanks again
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timwest PRO Algokid
2 years ago
One important consideration for any system (warning: free advice to follow) is to make sure you design something that you believe so that you will follow it no matter how it "feels".

Cheers. Tim
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Algokid PRO timwest
2 years ago