OmniVest User Forums
User-Created Portfolios
Portfolio Switching
36 replies, 3235 viewings
|
OmniVest User Forums
User-Created Portfolios
Portfolio Switching
|
Last Activity 7/22/2015 8:11 AM 36 replies, 3235 viewings |
|
|
| Printer friendly version |
Diamondjag Veteran  Posts: 123 Joined: 10/11/2012 Location: Brighton, Co.  User Profile |
What I heard Steve say on the call was that his dramatic OV improvement came from switching to the best performing portfolio at the first of each month based on a moving average (I assume of the portfolios equity curve). In another post Steve said, "But, perhaps like classic technical analysis, it seems to me to be far more important to have automation that could switch to any higher-performing portfolio at the optimum time, rather than focusing effort on building the optimum portfolio to begin with. IMHO, simply (?) adding basic trendline or momentum indicators on the equity curve and supporting the ability to do automated port switching looks to be a far better near-term goal." I have an interesting example of portfolio switching. I use a program called "Dynamic Investor Pro" (the only other product I use other than Nirvana products). It is basically a relative strength program, keeping you in what is the strongest stock/ETF/or Mutual fund at any one time. You have your choice of different relative strength formulas. What I have found is even using the same group of symbols, different relative strength formulas give you vastly different returns in different years, regardless of the overall market return. Example: Using a relative strength formula called Price Oscillator with a mix of five non-correlated ETF's, the portfolio has already returned 18% this year, with the market down about -.4% (prior to today). Last year those same ETF's and same formula returned a -34% with the market up +29%. In 2010 they returned +36% with the market up just 13%. This is just one of many, many examples. I am now switching formulas in this program as returns change. You clearly can't depend on one relative strength formula holding up in all markets. I look at results weekly but may only switch once is several months or less depending on how things are going. Some portfolios remain the best all year long (only to fall apart the next year). And, you may have to totally stop trading and move to a different mix if none of the relative strength formulas are working with that certain ETF (or stock) mixture. The point....it is possible that we'll see the same with OmniVest, as Steve seems to be finding. For optimal returns, you may have to keep moving....staying in the Portfolios that are working at any one time (and this is not necessarily long to short portfolio switching). Switching can clearly get carried away by changing too often, but some portfolio switching could dramatically increase returns and...wouldn't it be wonderful if OmniVest could monitor the portfolios and do the switching for you. | ||
| Jim Dean Elite   Posts: 1059 Joined: 10/11/2012 Location: L'ville, GA User Profile |
1. Steve's mechanism forced switching by closing all trades before switch. With OVest and TProc running the show, I believe that active trades in closing portfolio could/should be allowed to run their course controlled by their TPlans. Any new trades would come from the newly selected portfolio. 2. The gotcha of filtering/conditions of virtually any sort is that the filter is too sensitive and it whipsaws, or it's stable but lagging. Finding a balance is tricky. As I've presented elsewhere at length, I think that at least six and more likely nine market states are useful - bull flat bear trends, each with wild normal or quiet volatility. Hopefully the mechanism for condition switching can somehow work with this multistate blend. Maybe "blend" is an important concept to work with. Someone (Ed,maybe?) suggested using the OScript formula to determine a balance or weighting of portfolios, rather than a square wave shift between them. 3. So, here's an idea: allow an OScript formula to be assigned to each of several portfolios, to act as a weighting factor for the allocations in that portfolio. Example: three portfolios, one designed for clear bull trends, another for clear bear trends, and a third for transitional/flat/consolidation periods - each with its own OScript formula that creates a numeric weighting factor based on some (presumably) simple market-metric, geared to recognize conditions that "fit" it's related portfolio best. Any of the three formulae could create weightings from 0-100%. That weighting would be applied to the allocation percentages in the various strats in each portfolio, normalizing the results to the desired pct invested for that Account. OVest already does just that with strats combined into a portfolio. The result would be an Account that intelligently "glides" through trend changes, in a manner that permits simultaneous mixing of portfolios in situations where the transition is not cut and dried. In my belief, that is the norm and not the exception. One could take this further, with three additional portfolios for wild normal calm, and OScript weights for them. Or, some entirely different track - nine portfolios for nine Sectors with OScript weightings gliding the mix through group rotations. 4. How to do this in the interface to make it simple to understand without adding a gazillion more layers: I believe the natural solution is to allow the user to create a portfolio, then STORE it AS a strategy, so that it as a whole can be studied and manipulated using the same very cool SLab tools that now work with strategies. And since strategies already have allocation percentages and conditions and metrics and whatnot, this might allow the portfolio-blending mechanism to be implemented with relatively small impacts on the GUI. Maybe I should have said "system" not "strategy" - but as I understand it, in OVest, "System" = what OT calls a strategy, and OVest "Strategy" = OVest System plus List plus Direction plus Conditions - if that's true then Nirvana please write it down prominently somewhere. I hope I got it right ;-) [Edited by Jim Dean on 3/17/2014 11:44 PM] | ||
| smartprofit Member Posts: 14 Joined: 3/2/2014 User Profile |
| ||
| Diamondjag Veteran Posts: 123 Joined: 10/11/2012 Location: Brighton, Co. User Profile |
[Edited by Diamondjag on 3/18/2014 11:09 AM] | ||
| Mark Holstius Elite  Posts: 744 Joined: 10/11/2012 Location: Sleepy Hollow, IL User Profile |
Steve Mayo & I have been working intensively on ways to improve the already good results with OV over the past year – well north of 1,000 hours devoted to development and testing of different theories. We’ve learned a lot - about OV and from each other - and found the best results in the area of weighting some “proprietary” parameters and then using those weights to choose which portfolio to use for the following month (switching). The bad news is that my archive of Excel spreadsheets that didn’t work contains over 6,000 “development” (i.e. didn’t work) spreadsheets (70GB), and my current portfolio list in OV has more than 300 portfolios (250 already deleted). In addition, the macros in the spreadsheets that are currently producing results can take many hours to run. I guess what I’m saying is that this level of testing isn’t for the faint of heart, but I FULLY agree with Ed’s plan to have the Professional version of OV for those that enjoy the development aspect. I’m convinced the returns are worth the effort, and hope that Elite trader will provide a way for many of us in this forum to share (and profit from) each others work. I’ll post a chart below to support Ed’s commitment to providing more tools – OV has capabilities we’re only beginning to appreciate, and the new tools coming can only improve the results. These are the results of running weighting algorithms at the end of each month to select a portfolio to trade the next month from 1/1/2007 to 1/1/2014. Ed’s excellent ARM4 Margin portfolio has been our “benchmark to beat”, so that’s included along with the QQQ @ 2X margin. In this example, our algorithm switched between two optimized portfolios on 36 of the 85 months (42% of the time), simply “carrying over” the preceding month’s portfolio for 49 of the months (58% of the time, no portfolio switch). In this example, it was accurate 65% of the time in picking the best portfolio to trade for the forthcoming month, improving CAGR by 195% and the Return:Risk Ratio (7yr CAGR/7-yr monthly SD, sort of a modified Sharpe Ratio) by 26% from 7.0 to 8.8. Steve & I have debated about posting results like this without wanting to divulge the specifics, but we feel it’s appropriate now as a small indication of what’s currently possible - and to support Ed and the staff in their complex and difficult move to another, even better level with the new tools coming on line. BTW – Jim’s post above has pretty much touched on all the correct aspects we’ve found to be useful (right once again, Jim). Mark [Edited by Mark Holstius on 3/18/2014 1:01 PM]  Attached file : Port_Switching.jpg (213KB - 1331 downloads) | ||
| kmcintyre Elite Posts: 890 Joined: 10/11/2012 Location: Portland, OR User Profile |
My observation and suggestion, now that we know portfolio switching can greatly improve returns, is to bake that knowledge into OV so all users get the benefit. Simple, on/off switch. Maybe a drop down to select between 3 - 5 proven algorithms. Nothing more. The Pro version sounds awesome. I will probably sign up, even if I never use it, just to support Ed's team. But I strongly believe it's in everyone's interest to bake proven concepts into the base product. AND EXCLUDE unproven stuff that adds to the probability of user failure (as well as complexity) for non-Pro users. I feel the interative strategy selection (ISS) method of portfolio creation falls into this camp. Many hours of manual testing have proven the concept (IMO). The base user could get a simple interface to turn the feature on/off, specify the depth (number of strategies), and the metric to solve for (like max return vs min risk). Very simple. Pro user could code up more complex metrics and strategy selection criteria. Both portfolio switching and ISS could be accused of "curve fitting". I would argue all technical analysis is curve fitting. But using broad concepts that "make sense" and have held up to back and forward testing with "out of sample" data offer far more promise than throwing darts or randomly tweaking a large multitude of parameters which aren't really understood by the typical user. How about using ARM to decide which indicators or fundamentals best determine portfolio selection? How about coding up the process that Steve and Mark have been laboring over such that the computer works hard and we all reap the rewards? Cheers Keith | ||
| kmcintyre Elite Posts: 890 Joined: 10/11/2012 Location: Portland, OR User Profile |
Keith | ||
| Steve Mayo Legend Posts: 414 Joined: 10/11/2012 Location: Austin, TX User Profile |
Mark and I should point out that the example above uses a more sophisticated ranking process than what I had suggested to Ed in the survey, that being the ability to rank and switch between portfolios (and ideally strategies too) based on a simple indicator measured on their equity curves. Therefore, here's a second, less sophisticated, example along those lines. It switches 7 times between a pair of portfolios to use the portfolio for the forthcoming month that had the higher monthly return in the preceding month. Just this relatively easy approach increases the modified-Sharpe to 8.5, about 20% better than ARM4 Margin over the same period. This simple technique could theoretically be done today by any of us simply by running OV simulations each month to rank the monthly return. But, be aware, as Jim points out, that this Excel simulation does assume completely closing all open trades in the first portfolio and buying all open trades in the second portfolio on those 7 month-ends where a switch occurs (and it doesn't include the added commission costs for doing so). Unless you were to close all positions manually, OV would normally stay in the open trades from the prior portfolio until each position reached its sell point. Without Nirvana adding functionality to OV, we can't know what impact those carry-over trades might have. Given the short duration of the RTM trades, it would logically be better to NOT enter those positions mid-trade just because the calendar cliked off a new month. I THINK the results would be better than this simulation, but currently there is no way to know for sure. Also, our simulation is based on the mark-to-market data from the OV graphs, which is the equity sum of the positions at the end of the day; conversely OV makes its trades at the open. Our simulation assumes you could sell-out/buy-back-in at the market closing price at month-end. Given OV doesn't tell you what it intends to buy tomorrow until well after market close, you obviously cannot actually do that. The simulation assume you would buy the next month's positions as of market close, even if they were going to be closed out in the morning. In reality, you would close out at EOD and then buy back in the next morning at MOO but that's an overnight slippage that is then also not included in this simulation. Bottom line, it certainly looks like there is good potential here to improve upon the OV returns but unless/until Nirvana can add the ability to rank-order ports (and hopefully strats too) based on an indicator, and then to trade in/out and between those ports/strats based on that ranking, we won't be able to properly validate that potential. [Edited by Steve Mayo on 3/18/2014 3:13 PM] Attached file : PastedGraphic-26.png (47KB - 1289 downloads) | ||
| Steve Mayo Legend Posts: 414 Joined: 10/11/2012 Location: Austin, TX User Profile |
Iteratively adding strategies to a mix (ISS) sounds like a promsing way to reduce the number of permutations, but you have to understand how OV works to see why it may not be. When you add the next strategy to the current mix, OV is now presented with a larger set of candidate trades to take each day. OV now might take a trade from this newly-added strategy and then not have the equity available to take the trade it took from the original set of strats. It's not additive/subtractive, it's different. (Statistically speaking, there is a high degree of nonlinearity.) Which means it is essentially unpredictable and we are back to doing all those permutations again. Conversely, portfolio switching requires only adding the ability to calculate a single formula that ranks a few candidate portfolios and a trading rule that switches between (or out of) them based on that ranking. If you start off with some fairly good portfolios (and Nirvana is promising us lots of them!) then your downside is limited to just the worst of the best. When switching, say, between 2 good portfolios, as long as your algorithm accurately switches to the better portfolio for the coming month more than 50% of the time, you should do better than trading one of those ports individually (yes, I know ordering of wins/loses matters but that's a different post). Mark and I have now shown two examples that are accurate more than 50% of the time, and it didn't take 17 trillion calculations. Plus, portfolio switching is an easy concept for novice traders to understand and could be applied to switching between Nirvana-created portfolios. The user would not have to know how to write a formula -- Nirvana could do that and then simply let users trade that "system of portfolios" as an alternative to picking just one. Rather than devolve into an ISS debate, let's move that to another message string and keep this one focused on portfolio switching. Thanks! [Edited by Steve Mayo on 3/31/2014 2:00 PM] | ||
| Mark Holstius Elite Posts: 744 Joined: 10/11/2012 Location: Sleepy Hollow, IL User Profile |
I quote Ed: "We are implementing the ability to turn Portfolios ON and OFF with simple OmniScript functions, and the Equity Curve will be available as a "symbol", just like any other, so people can use Moving Average of the Equity Curve to filter it." More good news - this should create a lot of new possibilities. Mark | ||
| Jim Dean Elite Posts: 1059 Joined: 10/11/2012 Location: L'ville, GA User Profile |
| ||
| kmcintyre Elite Posts: 890 Joined: 10/11/2012 Location: Portland, OR User Profile |
The current OV logic allows one to move between portfolios gracefully. The existing trades are managed to completion. New trades are generated from the newly selected portfolio(s). And it doesn't need to be a binary choice. Adding the ability to adjust the Alloc % of various selected portfolios based on a metric would provide a lot of flexibility. If the metric was dynamically calculated and applied during the simulation period one would easily be able to quantify the benefit of portfolio switching. (Although perhaps not based on a monthly period.) I think portfolio switching (actually rebalancing, which could include a complete switch between portfolios) is an excellent approach. It adapts to changing market conditions. Assuming Nirvana comes up with a bunch of portfolios that perform good-to-great in every market as a starting point... I agree - one won't do worse than the worst portfolio, and probably will do better than the worst by portfolio switching. Iterative Strategy Selection (hence ISS, not ITT) is a way to construct optimal portfolios given a specific set of account settings. ISS is not in contradiction to portfolio switching (which I'm getting tired of typing so I'll refer to as PPS for "programmatic portfolio switching"). PPS and ISS are highly complimentary. ISS gets one to portfolios that worked well during different markets. PSS allows for the automated (programmatic) switching (or rebalancing) between those portfolios. Both allow software to perform analysis that would take a mortal many man hours to complete. Both are instances where the computer can do it better than a human. Both rely on hindsight. Both are better than throwing darts. (Much better IMO.) I didn't mean to "devolve into an ITT debate". Sorry. Cheers Keith | ||
| Diamondjag Veteran Posts: 123 Joined: 10/11/2012 Location: Brighton, Co. User Profile |
The first big question is when does the market turn? Then...how long is that turn going to last? We might be able to quantify the first (moving average cross etc.) but we will never know the second. More importantly, all "up" markets and "down" markets are not the same. Ed alluded to this in a post when he said," Reversion to Mean strategies (which is what all the "R" strategies are), work best in choppy markets that move up and down to provide reversion opportunities. In strong trends, Reversion Strategies will buy in downtrends and sell in an uptrend." Furthermore, a straight up market would work best with one strategy in OmniVest, a sawtooth up market (still an up market) would work best with another strategy, a swinging up market would work best with another strategy. So different strategies work best with different TYPES of up, down, and sideways markets. This may not be a dramatic revelation to anyone but I would suggest, if you're not going to use a single Portfolio (I'm going to switch to the word Portrolio here since that's generally what we're trading in OmniVest) highly tuned over a long period of different market conditions, that you don't go for just an "up" Portfolio and a "down" Portfolio but keep a stable of good Portfolios, as this thread is suggesting, and move into them as they are working (defined as making money). Let the Portfolios themselves tell you which one to use at any one time. [Edited by Diamondjag on 3/19/2014 12:12 PM] | ||
| BrianD Legend Posts: 302 Joined: 2/23/2013 Location: Grand Rapids, MI User Profile |
My concern is a few days lag in month by month rollovers may make a noticeable difference in simulation performance metrics if not accounted for. | ||
| Jim Dean Elite Posts: 1059 Joined: 10/11/2012 Location: L'ville, GA User Profile |
| ||
| kmcintyre Elite Posts: 890 Joined: 10/11/2012 Location: Portland, OR User Profile |
The devil is always in the details. Will OScript need to resolve to a binary result that enables/disables a portfolio? Will OScript be used to modify the Alloc % of a strategy? Will OScript for one portfolio's "condition" be able to reference the equity curve of another portfolio? Will one OScript be able to enable/disable arbitrary portfolios? And set allocation levels? Or will there be one OScript that runs every day that manages all portfolios? What Steve has described (afaik) is - if (end of month) { __find best portfolio return for past month __enable best portfolio __disable all other portfolios } This logic requires reference and control of all portfolios. I.E. a global scope, vs a private scope. (relative to a single portfolio). It will be interesting to see what Nirvana engineers provide. Cheers Keith | ||
| kmcintyre Elite Posts: 890 Joined: 10/11/2012 Location: Portland, OR User Profile |
if end of month { __run each portfolio at 100% alloc, as the solely enabled portfolio, based on the account settings but with a date range that covers the previous month. __find the portfolio with the best return over the past month __enable the best portfolio __disable all other portfolios } This seems like more than a OScript condition applied to each portfolio. An alternative might be - __run each portfolio with no regard to account settings, taking every trade as sized by the strategy and strategy Alloc %, with a date range that covers the previous month. The latter might ameliorate some of the concerns Steve has voiced about Apple and Amazon hogging trades and skewing performance stats. (Revisit having the engineers figure out what works best and provide an elegant solution...) Cheers Keith | ||
| Steve Mayo Legend Posts: 414 Joined: 10/11/2012 Location: Austin, TX User Profile |
So, I also THINK that transitioning from one port to the next is probably best, but as a scientist I recognize that I really don't know until I can properly test it. Ed said he would be giving us the ability to export the "discarded" trades, so maybe at that point we can answer that question. [Edited by Steve Mayo on 3/20/2014 12:54 PM] | ||
| Mark S Regular Posts: 56 Joined: 10/11/2012 Location: Barrington, IL User Profile |
I built 4 portfolios, optimized for different market conditions, through heavy use of Steve and Ian's Portfolio Analysis tool (thank you!) Bear Bull RTM Strategies Bull Trending Strategies (longer holding periods) Both Bull and Bear (RTM Strategies that were common to Bear and Bull RTM above) I then created an account that contains all 4 Portfolios (18 Strategies), and simply set the Allocation % to zero for the portfolio(s) that I think are not relevant for whatever reason. For example, I think we're due for a major correction, so I've set Bull Trending to 0%, and I've turned on the Bear portfolio. The benefit (I think) is that any open positions will still be managed by the relevant strategy, but no new positions will be opened when a Portfolio is set to 0% allocation. I just started doing this last weekend, so have not yet turned off a Portfolio that has open positions. But I think this will work, and will facilitate easing in and out of strategies as needed or desired. | ||
| Mark Holstius Elite Posts: 744 Joined: 10/11/2012 Location: Sleepy Hollow, IL User Profile |
OV is supposed to handle the open orders (close per strategy) when you change portfolios, but if you're just "rotating" back & forth between a few portfolios, yours seems like an excellent way to do it. It might accommodate Jim's idea of "slowly"(?) rotating in and out of market states too if you found a good way to assign weights to them as the market changes...??? Thanks for the input, Mark | ||
| Mark Holstius Elite Posts: 744 Joined: 10/11/2012 Location: Sleepy Hollow, IL User Profile |
It might be assumed we were switching between two “better” portfolios to achieve that performance relative to ARM4 – and that would overlook the inherent benefits of switching. To visually demonstrate the power of switching, I’ve put together a series of charts using some standard account settings with ARM4 and another portfolio, both in OV and then using our switching algorithm. Results in OV2; Results of switching the same two portfolios; I hope this helps everyone appreciate the considerable benefits of portfolio switching. This was a long and tedious process the past year for Steve & I using Excel. We didn’t want to just “put this out there to brag” and then not give any details - but Ed has mentioned that this capability could be a part of the new upgrades coming to OV2. If so, it will definitely raise the potential of OV to new levels for everyone… Mark [Edited by Mark Holstius on 3/29/2014 9:50 AM] Attached file : Combo In OV2.jpg (540KB - 1019 downloads) Attached file : Combo Switching.jpg (231KB - 1001 downloads) | ||
| Fred Gordon Legend Posts: 481 Joined: 10/11/2012 Location: Fayetteville, Ga User Profile |
If Nirvana created such an algo and made it available to all, would'nt we tend to trade the same symbols at the same time? | ||
| Jim Dean Elite Posts: 1059 Joined: 10/11/2012 Location: L'ville, GA User Profile |
OVest does now have and will grow further in its ability to help select the most effective combo of strategies and allocations to make up a good Portfolio (like M&S's Portfolio 2). M&S have automated that process, but automation like that will only be possible via the not-yet-clarified capabilities of the Pro level. The most important thing for folks like M&S who have worked so hard to define good portfolios, is to be able to implement the switching on an automated basis. Assuming that the rule that you want to use can be coded into an OmniScript formula, the "input field" for that formula is what N is providing for Portfolio switching. Of course, it's possible that N will eventually create an engine which does the kind of thing that M&S have been doing in Excel ... but afaik that has not been promised yet. [Edited by Jim Dean on 3/29/2014 2:03 PM] | ||
| Jim Dean Elite Posts: 1059 Joined: 10/11/2012 Location: L'ville, GA User Profile |
Ed already has said they have plans for "intelligence" (ie some extra rules) to be added which will help prevent or ameliprate the effects of lots of people trading the same symbols at once. My guess is that as the OV clientele grows, there will be more and more work done on this issue. Another note ... if M&S choose to make their custom setup available thru Elite Trader, then there could be a lot of people who trade it. But if they keep it to themselves, they won't likely have to worry as much about that. | ||
| Steve2 Elite Posts: 750 Joined: 10/11/2012 Location: Annapolis, MD User Profile |
When each switch occurred, did you force-close open positions or allow them to be closed by the strategies in the "switched-from" portfolio? Are you able to tell from your data how much of the increased returns from switched portfolios vs combined portfolios were due to more profitable trades vs a higher overall TPM vs a higher average % invested? Steve |
|
|
|
|
Administrator
Forum Moderator |
Registered User
Unregistered User |
 E-Mail this thread to a friend |
Toggle e-mail notification |
