Tuesday, May 20, 2008

System Discussion From Other Blogs

I've noticed some good posts on systems lately. Below are a few for your review:

Using RSI(2) to time ETF entries – Woodshedder shows some results and discusses a current trade.

IBD Index seems to out-do himself every weekend with a new post on system design. This week he discusses profit targets. One of the few authors I’ve seen to thoroughly test breakout systems. This is a regular part of my weekend reading.

Afraid to Trade with some thoughts on backtesting.

Skill Analytics - A brand new blog dedicated to discussing system based trading strategies. I'll be keeping an eye on this one as it looks to have potential.


Jeff said...

Rob, thanks. Your blog and testing methodology have been a huge inspiration for me.

bhh said...

Hey Rob, thanks for the shout out. I knew something was up when I checked google analytics and my hit count was up about something like 5000%.

Forrest Cornfield said...

I appreciate you sharing your work with all of us.

I follow the market closely also, and have done numerous studies myself over the years. Some of them you can find at Silicon Investor, under the thread: "Buying SPLITS and Other Strategies". Mainly I just post my weekly chart scores there now.

Recently, I back tested a trading strategy based on oil vs. gold- figuring that long term, they should follow each other pretty closely, and a pair trade could work out. It turned out, I was correct.

Since I don't have a commodity trading account, I used XLE and USO vs. GLD. Turns out, XLE works best because you can't short USO. (I tried). I only checked it back 4 yrs. because GLD data only goes back that far.

The parameters: Find the ratio of 10x GLD vs XLE. Find the average of the ratios for the past 3 yrs. (Had to use shorter terms for 1st 2 yrs.) Take the HIGH signal at 1.5 standard deviations above the average, and the LOW at 1.5 SD below.

Enter trade when 5 signals in a row are made (High = Long XLE, Short GLD) (Low, vice versa). Entering the short trade first allows you to double your long position with the added margin.
Close both positions when the ratio returns to the average.

If my math was correct, this strategy returned around 55% apr.
Maybe you could have a look- and let me know what you think?

On the verge of getting a LOW signal at present (ratio avg - 1.5SD = 9.84).