Friday
Jan022009
Christmas Gift Update
Friday, January 2, 2009 at 10:17PM Here is an update to my Christmas
"gift". I received an EMAIL from a peer who
has checked the results. Thank you all for
tuning in.
I received this EMAIL
from an interested reader whom I sent the EXCEL
spreadsheet to:
| Hey Steve, I worked with the model for a while. I redid the formulas to be based off of all closing prices and made an S&P500 version that is long only. Also notice on the far right side I did a MAX DD calcualtion and a rough estimate of the year by year returns. I still need to look at what I did on the model I made up at work. However, as this version that I'm sending you stands, I don't see anything wrong with it. I can't believe the equity curve on something as simple as this. Using a discount broker commissions really won't be an issue and slippage should also not be a problem trading something as liquid as a major index. I'll keeping playing around with things, and probaly paper trade this for a while. Looks good, just really hard to believe the results. I think Trade Station has an intraday backtester, that could be used to verify this strategy, but you need an account and the platform is $100 per month. Probably, just easier to paper trade it. MAXDD: 16.06% Profit:
 |
Thank you C.R. for checking the system results and the additional spreadsheet work!
So here is the deal. I
have LOTS more trading ideas just like the
"Christmas gift". I will be posting them randomly
over time with no advance warning. I'll keep the
systems public for a couple of days before turning them
private again. I have a trading system ready to go
and will publish it sometime in the next three
months. It is so simple you could trade
this with your eyes closed. The equity
curve for this new system is shown below. It is
the accumulated points profit on the DJIA index (Long
and Short) since January 2000.
Take care,
Steve
Reader Comments (3)
Steve:
I ran the strategy using the excel spreadsheet down loading SP500 data from Yahoo to create the triggers. The results are good. To trade the strategy, I used SSO for the long positions and SDS for the shorts as you suggested. My conclusions are -
The long strategy seems to work but not at the levels indicated by the SP500 charts. The long and short strategy works until the big downturn in 10/2008 then suffers a big drawdown.
My guess is that the ETFs do not really follow the SP500 that closely. For example, the open for the SP500 is almost identical to the previous close. For SOS and SDS there is quite a difference. There is a timely article in today's Wall Street Journal "ETF Math Lesson: Leverage Can Produce Unexpected Returns " (http://online.wsj.com/article/SB123111094917552317.html) about the index funds.
Anyway, I will send some charts via email if you want to see the details. I enjoyed the exercise and learned something. I will "update" my spreadsheet to allow downloading of three data sets - Index, Index ETF long and Index ETF short so I can easily test strategies and look at the results. For now, I am going to paper trade the SP500 Long Only strategy to see how it works out of sample. I noticed that the strategy favors volatility and that is what we have right now.
Glenn
Glenn - Thanks for sending me your results. Are you aware that SDS payed out significant cash dividends recently? On Sept 24th a $4.04 dividend was payed out and on Dec 23rd there was an $11.49 cash dividend payed. These will cause major problems for your spreadsheet results. There are dividends payed by SSO as well but they appear to be pretty insignificant. I'll wait for you to have a look at the dividend issue prior to posting your results.
Before you invest in stocks, you should be aware that they involve some risk because the value of the shares of any one company can radically rise or fall depending upon the financial management of that company and the economy in general. Furthermore, the right type of stocks may be hard to find because each stock purchased or sold must be analyzed and evaluated based upon the limited amount of information available through third party sources. This makes diversification of your investment among many different types of stocks difficult due to the financial resources required. Also, the timing of when to get in or out of stocks is hard to predict and should not be attempted by people nearing retirement age.
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