On the Drawing Board
I just finished updating the list of favorite MarketSci posts and I realized two things: (a) that I’ve written a lot in the last year (when did I do all of that?), and (b) that I need to make sure I’m not writing so much that I’m losing focus of the topics that matter the most.
So to keep me on my game, this is my short list of things on the drawing board that I’m most excited about:
Combining Strategies
We have all of these very successful individual strategies. Great…fantastic…but we’ve never had a smart approach to dynamically allocating funds between them. I’m working on a framework that goes far beyond the traditional MPT approach to allocation, and I hope to talk about it at least at a high level on this blog.
Taking the Pulse of Short-Term Mean-Reversion
Short-term mean-reversion is so important to so much that we swing-traders are doing right now because at this moment in history, it’s the most effective (directional) play.
That’s fine, but I’d like to have a very visual way to periodically take mean-reversion’s pulse so that we can be a little more prepared when (not if) the effect evolves again. So starting this month, I’ll be issuing a monthly “State of Short-term Mean-Reversion” report that will aim to do just that – give some insight into whether short-term MR is waxing or waning. Be on the lookout.
Timing the Strategy
All this talk about timing strategies themselves (rather than directly timing the market) has got my wheels turning (and led to some late nights) the last few days. I’m not ready to share quite yet, but whatever my solution is, it will need to respect this critique.
Growth vs Value Strategy
Read What Makes the Market Go Zoom, Growth or Value?
That post didn’t get much fanfare (IMHO, the significant ones usually don’t), but as a strategy developer, it’s got me jazzed. Want to get a geek like me all hot and bothered? Show him that smooth of an equity curve not based on directly trading an asset’s price. Next step is figure out a way to predict whether growth or value will outperform in the short-term.
That’s it…now, time to FOCUS.
Happy Trading,
ms
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Filed under: Random Stuff | 9 Comments
Michael,
“the Pulse of Short-Term Mean-Reversion”
Would this mean some tinkering with the original Marketsci strategy to make it more dynamic.
RE to Marc: hello sir – not related to any of the strategies directly. The YK and Scotty strategies are “adaptive” and should already (in theory) be in tune with the ebb and flow of short-term MR. The purpose of this report will be for general informational purposes for all readers.
P.S. expect an announcement shortly RE: the original marketsci strategies. more to follow.
michael
Michael,
Last month I did a post on a VERY unsophisticated version of what you describe… take a look:
http://snaptrader.blogspot.com/2009/07/id-like-something-blended-please.html
I find that blending strategies CAN improve returns, but most certainly improves risk adjusted returns and reduces volatility. I’m looking forward to your work, as it will surely be thought provoking as usual. I don’t use any dynamic allocation strategy – which might be preferable. My allocations are purely static and based on maximum risk per trade in each strategy.
bill
RE to Bill: thanks for the link and thoughts – I agree…my target for this dynamic allocation is managing drawdowns and vol (return being just a function of exposure/leverage). michael
Michael,
At the risk of sounding like a Johny one-note, I want to put in a plea for you to spend some time on crash-protection for our traded assets. I know you agree on the importance of protecting your capital, because you’ve stated so before. In my mind, that is much more important than finding *additional* ways to make more money. (of course, I realize that reasonable minds may differ on this)
=Carlos=
RE to Carlos: I assume you’re referring to the disaster overlay. You’re right…that needs to be on the short-list and I need to be spending more time focused on it. Consider it added. michael
Cool!
Thanx.
Michael, I am very interested to see what you talk about vis-a-vis Combining Strategies. I haven’t moved much beyond allocations based on relative strength (related to some kind of look-back).
I should have paid more attention at school when we went over MPT in Economics but I had “more” important things on my mind in those days.
Personally I still consider diversification is the best “real” protection against “disaster” – I get a bit nervous about the dreaded curve fit using other ideas.
John
RE to John: two immediate thoughts…(a) I think you’re absolutely right re: diversification being the only real protection. The question I want to answer is what % do we allocate each strategy in that diversified portfolio? And (b) I don’t think you missed much re: MPT. Earth-shaking for its time, but overly simplistic I think today. michael