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Jim Dean

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Joined: 10/11/2012
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Subject : Multiple Date-Ranges for Portfolio Selection
Posted : 11/16/2012 6:50 AM
Post #22188

This post is in answer to a question by Ger on 10/16/12, 1:11am, here:
http://www.omnitrader.com/currentclients/omnivestforum/thread-view.asp?forumid=20&threadid=4034

It contains a discussion of how to deal with short-term variances in Portfolio performance, and how to "automate" an optimization procedure for that, from within OmniVest ...

AND AN ENHANCEMENT REQUEST (see the end please)

=======================================

The answer is DEFINITELY ... you should adjust the strategies (or the Portfolios that contain them) to the MARKET CONDITIONS.

Your post is a great illustration of the need for robust filtering in the strategies. The filters should recognize the diff between:
Bull, Flat, Bear trendiness, AND
Steady, Mixed, Wild volatility
... that is, NINE combined market states.
I usually number them 1-9, where 1=BearWild, 5=FlatMixed and 9=BullSteady

Almost any strategy has a "bias" to being more successful in some of those Market States than others. You need to identify what states a strategy is most successful IN, and build Filters to only let it fire during those times.

No such filters are "perfect" ... and of course defining the Market State is sort of a holy grail. I've got a pretty good mechanism for doing so, but others do as well I'm sure. Inevitably using heavy filtering like that will make you miss some good trades, but if it's done properly, it will "keep you in cash" for a given strategy when the market is not appropriate for that strat.

This needs to be done in the Filter Block of the Strategy for it to be back-testable. The only way that OVest allows us to write our own Filter Block logic is via the Elite Trader interface, afaik.

==============

ANOTHER way to do this is to use OmniVest's allocation percentages along with a wide mixture of strat's to MANUALLY adjust the mix based on your perception of Market State, and the Strategy's pattern of operation.

To do THAT ... you need to know for each Strategy how well it performs in each of the nine MS's ... and THAT requires that you drill down and do a lot of manual checking of historical performance over different (short) time frames. This is likely too time-consuming (and exasperating) a task for most people.

------------------

SO ... SUGGESTION to solve this dilemma. If OVest would allow us to input a SERIES OF discontinuous Date-Ranges, such as:
Jan03-Jun03 + Oct04-Mar05 + Apr06-Feb08 + ...
... THEN we could "go to town"

How? To what purpose?

1. Decide what historical date-ranges represent given market states (by eyeball or by a fancy indicator, it does not matter)

2. Create a list as above of the date ranges for a given state

3. Run OVest on a full set of strat's to find the ones that work best during that date-list, and record them or save them as a Portfolio with that Market State name

4. repeat 2-3 for nine Market States

5. For actual trading ... decide (by indicator or eyeball) what State the market is in NOW ... and adjust the allocation percentages appropriately to emphasize Portfolios that do well in that state.

================

NIRVANA ... can you please comment on the possibility of allowing us to input a string of short date-ranges as described above, for this purpose?

Thanks.

[Edited by Jim Dean on 11/16/2012 7:00 AM]

Deleting message 22188 : Multiple Date-Ranges for Portfolio Selection


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