Mark Holstius Elite    Posts: 744 Joined: 10/11/2012 Location: Sleepy Hollow, IL  User Profile | Steve & I are currently limited by the capabilities of Excel, but I wrote a new macro that again switches between 2 portfolios to test my theory. It chooses from a universe of 40 different selection "factors" (RSI, etc) based on their performance over the previous 6, 5, 4, or 3 month periods. The universe of factors doesn’t change, just the number of months used to select the best performing one over that X month period - and then that factor is used to choose the one portfolio of 2 to use the following month, rolling forward one month at a time for 7 years. In other words, the only variation in the 4 algorithm setups is the BT period. The results are quite different for the 4 periods. The image below has the dates on the left and columns to the right for the results for the 4 periods. If the chosen port was the best of the 2 for the following month, the cell is green - if not, red. I’ve computed the results for switching using the 4 BT periods, and they’re located at the bottom of each column. The equity ranges between $6.9M (64% of months correct) and $10.8M (71% of months correct). If we could determine at the EOM whether to use the 6, 5, 4, or 3 month BT choice, the results would be improved rather dramatically. ($15.4M and 82.6% correct) Over this 7 year period (1/1/07 to 1/1/14), there was only a need for 6 changes from one BT period to the other - and during many periods there was considerable agreement and overlap between the results for the 4 different BT periods, so the “Market State” rule would not have to be too sensitive or stringent. In only a couple of cases is the move an “abrupt” one; #1 - any time during a 4 month period #2 - any time during a 9 month period #3 - any time during a 3 month period #4 - any time during an 8 month period #5 - any time during a 7 month period #6 - any time during a 2 month period The results for simply changing the BT period those 6 times are in the column to the right: $15.4M and 82.6% of months the correct portfolio is chosen. Note: these are true "walk forward" results (not curve fit over past data) and Ed's excellent ARM4 yields $4M over the same period. Jim - you’ve done a lot of work to quantify “Market State” identification, so I wonder if this might be possible? Mark [Edited by Mark Holstius on 4/13/2014 7:28 PM]  Attached file : Market State Switching.jpg (1303KB - 695 downloads) |
