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I want to get back to my original concepts of industry
strength (see Switching
Horses) so I am going to put my Industry Breakout aside for now and
watch it's out of sample performance. I'm reasonably satisfied
with the trading system but it is always a good idea to summarize the
strengths and weaknesses of the system for future reference. For
system trading rules see Second
Thoughts.
Weighing in with Industry Breakout
The first note I have to make to myself is that it is not
really an industry breakout system. Most of the performance has
to do with the ranking system Olikea's Brainchild plus market
timing. There is an industry breakout rule but it only plays a
minor role in reduction of drawdown. See Checking
Under the Hood. So I should change the name but will do so
later. (Too much work to accomplish, too little time.)
I am reasonably happy with the system
robustness and startup
robustness. Ranking
system robustness and ranking
system across different universes appears to be good. I also
tested the ranking system against various
sectors and the results were relatively good.
The profit per trade in backtest was approximately 14%.
This is fairly good and should stand up to moderate changes in market
conditions.
What do I view as negatives
for this system?
The drawdown is protected by market timing. If the market timing
is even slightly off the drawdown could end up being 20%-30%. See
System
Degradation Testing.
I expect much more volatility going forward than we have seen
in the years leading up to the late 2007 bear market. Therefore
the market timing will probably play a more significant role going
forward, resulting in more exit/entries, whipsaw and low profit per
trade. There is nothing I can stand worse than having to put in
sell orders for 20 stocks on a Monday morning and trying to manage the
trades.
Some time ago I created a port that had slightly different
buy/sell rules. I have been monitoring this system over time -
uses the same ranking system. It can be found here.
Although the port is beating the benchmark there is a disturbing
phenomenon going on. There have been three days since startup
where the 20 stock port has had 5% losses.
| Date |
Industry
Breakout
Variant |
SP500
Benchmark |
| 12/19/2008 |
-1.52% |
-1.83% |
| 12/22/2008 |
0.75% |
-0.97% |
| 12/23/2008 |
-0.39% |
0.58% |
| 12/24/2008 |
1.91% |
0.54% |
| 12/26/2008 |
-1.62% |
-0.39% |
| 12/29/2008 |
2.91% |
2.44% |
| 12/30/2008 |
3.93% |
1.42% |
| 12/31/2008 |
0.51% |
3.16% |
| 01/02/2009 |
0.63% |
-0.47% |
| 01/05/2009 |
1.26% |
0.78% |
| 01/06/2009 |
-1.01% |
-3.00% |
| 01/07/2009 |
2.31% |
0.34% |
| 01/08/2009 |
-5.08% |
-2.13% |
| 01/09/2009 |
-1.30% |
-2.26% |
| 01/12/2009 |
1.64% |
0.18% |
| 01/13/2009 |
-4.95% |
-3.35% |
| 01/14/2009 |
1.71% |
0.13% |
| 01/15/2009 |
0.91% |
0.76% |
| 01/16/2009 |
-5.68% |
-5.28% |
| 01/20/2009 |
4.12% |
4.35% |
| 01/21/2009 |
-2.27% |
-1.52% |
| 01/22/2009 |
0.31% |
0.54% |
| 01/23/2009 |
2.18% |
0.56% |
This is something I don't like to see in a relatively diversified
portfolio. It might be a warning of a breakdown in the ranking
system. I'm not sure. Anyways I'm going to watch this
carefully.
You can find the Industry Breakout stock trading system at Portfolio123 as follows:
Industry Breakout Portfolio:
http://www.portfolio123.com/port_summary.jsp?portid=406596
Ranking System: http://www.portfolio123.com/app/ranking-system/72662
Custom Universe: http://www.portfolio123.com/screen_summary.jsp?mt=7&screenid=20173
Now back to my research on Industry Strength!
Steve, the Stock Market Student
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Thursday, February 12, 2009 at 9:44PM 
