Archive for May 24th, 2008

Know What’s in Your ETF and How the ETF is Calculated : Trader Mike

Mike looks at the DUG ETF and why it’s been acting so funny.

World Beta – Engineering Targeted Returns and Risk: Rebounding

World Beta takes a look at investing in stocks/ETFs that are down for a given month and presents a strategy.

Quantext – “Humble Arithmetic”

Quantext looks at portfolio construction and risk levels/factors.  Part of a great series by them.

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IBDIndex continues the RSI(2) testing…..at this rate, the combination of bloggers working on this will be able to publish our own research paper on the strategy.

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I don’t know if it is just the case of like-minds thinking alike, but I just was over at Dog’s site and found a discussion of using the percentage of stocks on RSI(2) < 10 as a breadth indicator.  Funny that – as I was working over the past two days on just such a system.  Of course, this is what I love about the internets – you have a group of people that have never seen each other being working together in all sorts of interesting ways.

Here are the details:

  • I started by taking the stocks of the S&P500.  I ran an Amibroker scan on them summing up the number of stocks, over time, with an RSI(2) < 10 and RSI(2) > 80.
  • I then graphed this data – screenshot below.
  • Then I setup a simple system – buy when the RSI(2) > 80 crosses over the RSI(2) < 10.  Sell on the opposite event.  For the test I used the SPY as a proxy for the S&P500 in order to make the breadth indicator do the hard work – in other words, I didn’t want individual stocks’ performance affecting the results.
  • The end result: STOCK TRADING SYSTEM FAIL!  The system is currently very poor.  Winners only 44% of the time which wouldn’t be so bad except it’s not a trend following system.
  • In any case, I’m posting the results and some screenshots – if anyone has any ideas, let me know.  If anyone wants some code samples just email me.   Also, if anyone wants my generated RSI(2) data on this stuff to play around with, I’m happy to provide it – just hit me with an email.  Let me know the group of stocks/index and any other settings.

System Fail

Here’s what the indicator looks like on-screen:

RSI Screenshot

System Statistics:

Initial capital 10000
Ending capital 12938
Net Profit 2938
Net Profit % 29.38%
Exposure % 68.40%
Net Risk Adjusted Return % 42.95%
Annual Return % 1.28%
Risk Adjusted Return % 1.88%
All trades 469
Avg. Profit/Loss 6.26
Avg. Profit/Loss % 0.08%
Avg. Bars Held 8.66
Winners 209 (44.56 %)
Total Profit 52080.3
Avg. Profit 249.19
Avg. Profit % 2.01%
Avg. Bars Held 11.89
Max. Consecutive 5
Largest win 1699.6
# bars in largest win 24
Losers 260 (55.44 %)
Total Loss -49142.3
Avg. Loss -189.01
Avg. Loss % -1.46%
Avg. Bars Held 6.05
Max. Consecutive 7
Largest loss -1119.8
# bars in largest loss 22
Max. trade drawdown -1931.6
Max. trade % drawdown -11.44%
Max. system drawdown -8072.9
Max. system % drawdown -43.98%
Recovery Factor 0.36
CAR/MaxDD 0.03
RAR/MaxDD 0.04
Profit Factor 1.06
Payoff Ratio 1.32
Standard Error 1657.56
Risk-Reward Ratio 0.06
Ulcer Index 19.44
Ulcer Performance Index -0.21
Sharpe Ratio of trades -0.17
K-Ratio 0.0051

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