There’s been a lot of buzz these past few days inside The PPT, with regards to our new trading system, using the Overall Hybrid Overbought/Oversold signals to place long and short sale trades. Those who are familiar, the results convey a picture of mathematical brilliance, something I’ve been alluding to for several years.
The rules are very simple. For example, when the algorithm says “oversold” a buy order representing 1/3rd of a position is executed. Another tranche is not executed unless the system flags oversold again. Should the algo go straight to overbought, due to a sharp market reversal, then the buyer will have to suffice with just 33% of his assets invested. No matter what, upon an overbought signal, the entirety of the account must be liquidated and a short sale placed.
In other words, on both the long and the short side, money is allocated in three tranches and liquidated in its entirety upon receiving an OB or OS signal, depending on whether you are long or short.
Here are the results since inception or 2009.
2009: SPY +32.3%, DIG +76.35%, ROM +148.61%, OIH +101.5%, IJR +32.3%, XLB +52.9%, ERX +155%, TNA +84.9%, UYG +28.5%
2010: SPY +18.34%, DIG +56.4%, ROM +84.01%, OIH +61.5%, IJR +29.48%, XLB +39.6%, ERX +97.8%, TNA +123.3%, UYG +31.4%
2011: SPY +12.79%, DIG +52.72%, ROM +18.66%, OIH +16.75%, IJR +24.76%, XLB +23.6%, ERX +71.6%, TNA +65.6%, UYG +12.5%
This is a brand new study and we will be building upon this framework to include highly correlated equities. We have data on stocks like FCX and EXK and the results are similar. When gazing upon this data one thought comes to mind: “Sublime Harmony of Mathematical Precision (SHOMP)”. By the way, that UYG (financials) data is about +50% in outperformance versus the year to date returns of the buy and hold crowd. Indeud.
Spread sheets with details are provided inside The PPT.
In other news, Europe is disappointing again. The Italian meatball at the ECB said, and I am paraphrasing here “we don’ta knowa what the fucka yous a talkin’ abouts. The ECB isn’t doing a shit.”
Get to cash.
http://www.youtube.com/watch?v=7LYbdbpifd4
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fig
You have Draghi’s accent down to a tee!
Nice headfake in gold and silver. It’s shit like that which makes people give up on trading.
Which is, of course, their aim.
_______
this mornings’ tape is like herpes, it keeps on giving to.
Fly, why don’t you follow your own system then?
I do follow it. I made 975% in my aggressive acct last year. But appreciate the fact that this study is brand new. Come to me next year with the same question.
We have over 1,000 points of data. This is not an anomaly.
Are you a Mason? Do you know the secret handshake?
(logo on stein)
NO and TES.
I am, though haven’t been active in years. When I was in NYC last summer a freind from CS took me to the Lodge there in Manhattan – very impressive
the sky is falling. but how far?
Dear Dr. Fly, your following statement is not clear and needs clarification: “Another tranche is not executed unless the system flags oversold again.” It is not clear because within the past few weeks, more than one oversold signal was emailed to me on the same day 11/23/2011, and then 11/25/2011. So, does your statement mean the next oversold signal that PPT gives NOT on the same day but a later date??
what lousy returns in 2011
Ha!
I am only referring to closing signals, not intra-day. If it closed OS today and then OS next week, that’s when you’d buy your second tranche. If it closed OS the next day, you would make your third and final purchase then wait for Overbought to liquidate.
At OB, you would liquidate longs then initiate your first short.
Often times, just 33% of assets will be invested, as the oscillator moves between ranges. Then again, one shouldn’t be fully invested in volatile markets like this. So it adds discipline to otherwise irresponsible behavior represented by most investors.
Thanks for the clarification.
Nothing can stop Santa Claus… not even the idiots in Europe. ADB will be rewarded.
I got my AAPL signal to buy @9:30:21 and then my sell signal @9:30:29 AM.
SMH buy signal came in at @9:32:16 (TXN rise)and the sell signal @9:34:42.
Two kinds of day traders- the quick and the dead.
This job may be profitable but it sucks.
Now what do I do for the rest of the day?
I may head over to Dixon Ticondoroga HQ near my house and fill up a tin cup with No. 2 pencils and sell them to the workers on breaks.
Or head over to Dwight Howard’s house (1 minute away) and see if he has a “For Sale” sign up.
A fly that doesn’t buzz around at random is a fly that curve-fits
shut up
what exactly above is curve fitting, dick?
He’s implying your study is only useful in hindsight. It’s an attack that only makes sense if you were trying to model the market with something like a Taylor series.
Well I realize that. And, past results do not guarantee future results. But these are not hypothetical trades. We included every industry in our studies, added in dividends and commissions. I didn’t backtest some make believe set of points. This is all of the data available since The PPT was invented.
No curve fitting at all.
Oh sorry, I glossed over the word “above.” Sort of makes a difference.
The PPT is basically a thermometer for the markets, not an equation. You can’t accuse a thermometer of being bias; doesn’t make any sense.
No, but you can curve-fit the trading rules that come off the thermometer.
I’d also like to know from the gentleman who decided to throw meatloaf at me how curve fitting applies to a study on the fucking S&P 500?
You have three minutes to respond, else banned.
“we don’ta knowa what the fucka yous a talkin’ abouts”
now you’re speaking my language!
What about the short ETFs? It would be a mirror image and thus similar results?
yes
Warrior Nymph and her sidekick US Dollar was blindsighted by Broke Clam (ECB) and King Clam (BoE) in Oct/Nov when they took me to the ground with a surprise hit…this time I was prepared for the fight. I finally got the Europe Clams Backbones back in my hands again.
Come get your SHOMP on!!!
Fly,
Glad to see progress on the systems. Question(s): How many trades were made in order to achieve those gains? and 2) Is it possible to test the PPT over a larger timeline?
I’d be curious to see how the system performed 2007-2008 before I traded it. Up until this summer, we’ve been rallying since 09′. I think that’s what the other commenter meant by curve fitting.
None the less, very intriguing results. I bet most people don’t realize how rare it is for retail investors to come acoss a system that quantifies price actions AND fundamentals within its algos. This is as good as it gets for the retail guys.
What’s causing the year to year returns to change, e.g
SPY
2009 32%
2010 18%
2011 12%
Prices failing to revert, most likely. Look at your most basic mean reversion type indicators… they were crushing the markets in 2008, but have been destroyed as of late. My favorite indicator is known on the blogosphere as the DV2/DVB. It’s calculate by taking the closing price divided by the average of the daily high and low values, averaged for the past two days, then ranked using a percent rank function. In excel, it reads =average((todaysclose/average(todayshigh,todayslow)),(yesterdaysclose/average(yesterdayshigh,yesterdayslow)))… then you take the result and apply a 252 day percent rank formula. In 2008 it returned ~160% on SPY bars. And has decreased each year since. This year, it’s getting destroyed… which likely goes to show that the PPT is quite dynamic in it’s derivation(s).
What is the average holding time of trades and what % of trades are profitable for say SPY?
Fly,
I can see the system working beautifully in our current trading environment, but how does it perform in a 2009/2010 melt-up environment?
Read again…