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Marc Cohn
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I am a patent litigator with a background in physics and electronics. I enjoy studying quantitative, rules-based investment methods through rigorous backtesting and numerical analysis. I believe that patterns exist in the market that benefit trading -- the challenge is finding them!
  • My Version Of Grossman's GMR -- 42% CAGR With 16% Drawdown? 5 comments
    Feb 4, 2014 8:48 PM | about stocks: SSO, FEZ, ILF, EEM, EPP, EDV, SHY

    I am debuting a new system that I have developed based on Grossman's GMR posted here. I wanted to make a similar system for myself that was easier to implement. I don't have fancy trading tools like Quantshare -- I just use Yahoo finance for data and Excel for processing.

    My variation on the GMR is backtested to 2004 with remarkable results. Returns versus the S&P (dividend adjusted) are:

    Year My System S&P (div adjusted)
    2004 16% 11%
    2005 80% 5%
    2006 19% 16%
    2007 22% 5%
    2008 57% -37%
    2009 51% 26%
    2010 50% 15%
    2011 77% 2%
    2012 23% 16%
    2013 44% 32%

    I have tested a number of systems but this is the first one that (1) beats the S&P every year for at least 10 years (2) does not exhibit diminishing returns in the later years (3) provides market-beating results in bull markets and (4) is practical and can actually be used.

    I am officially going live now. The system sent a cash signal on December 31, 2013. How prescient! January was bad. I'll chalk that up as a win -- not losing is definitely a win when the rest of the market is going down.

    For Jan 31, 2014, the system gave a signal for SSO and we bought at 95.17 on Monday morning, first thing. Well, I should've waited. Anyway most of Monday's loss has been recovered today. And the month is young...

    Some more stats and features of my system:

    - Rotates SSO (27%), FEZ (12%), EEM (6%), ILF (28%), EPP (3%), EDV (19%), and SHY (5%). The percents show the portion of time spent in each position.

    - Uses monthly data only. This makes data management and processing very easy on Excel.

    - 42% CAGR since 2004. Never a down year, always beat the S&P.

    - Maximum drawdown only 16.1% (Apr 2010). Annual standard deviation is 22.5%.

    - Even with a horrible-case 1% slippage per trade, CAGR was still 35.8%. This is because the system doesn't trade all that often: 121 trades since 2004. Thus, you do not need to be so careful about your entry and exit points, and market liquidity problems will not kill you if you accidentally forget to click "limit order." In other words, it is easy to implement.

    - It relies on 6-month volatility, not 20-day volatility like Grossman's system. There is no need to acquire and calculate daily data. Volatility is also a positive correlation in this system -- higher volatility will increase the ranking. I have struggled to explain why this is, but my best guess is that it marks the beginning of an uptrend, rather than the end of one, as you would see with lower volatility.

    - you trade once per month. The signal comes after the close of the last trading day of the month. You can then sell the previous position and buy the new one (if the signal has changed; it doesn't always) at the open on the next trading day. If there is a big gap, you can decide to skip the trade or enter a limit order at the "signal price" or just jump in. I showed above that even a 1% slippage from the "signal" price doesn't do too much harm.

    Disclosure: I am long SSO.

    Stocks: SSO, FEZ, ILF, EEM, EPP, EDV, SHY
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Comments (5)
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  • donkrafft
    , contributor
    Comment (1) | Send Message
    Did you try higher and lower volatility ranking in your back-testing? The system was originally intended to reward lower volatility and I'm surprised to see this system favoring higher volatility. And do I understand that your volatility is based on end-of-month prices or is it on monthly aggregated candles (using the entire price range for the month).


    Your system uses leveraged SSO instead of MDY so it's more like Frank's enhanced GMR (OTCQB:GMRE) system.




    Don Krafft
    27 Feb 2014, 09:30 PM Reply Like
  • AlexanderHorn
    , contributor
    Comments (31) | Send Message
    Hi Marc, have been following your efforts on the GMR strategy both on SA and your blog.


    Currently trying to form a group of people to replicate this and other strategies using Quantshare the tool Frank is also using, actually QS is not to tough (and fancy) to use.


    Can find us here, hope you join:
    26 May 2014, 04:31 AM Reply Like
  • rmpalpha
    , contributor
    Comments (143) | Send Message
    Hi, Marc. I am having a problem calculating the CashRatio cash signal. My understanding is that the Ratio = (SSO*0.75)/(EDV*0.25); and if the Ratio exceeds 0.75, a Cash Signal is generated. However, my calculations generate Cash Signals every month, so my understanding must be incorrect. Please advise how to calculate and apply the CashRatio. Thanks.


    2 Jun 2014, 11:30 AM Reply Like
  • tmdoherty
    , contributor
    Comments (1246) | Send Message
    According to my spreadsheet, the strategy selected ILF for September. FWIW, this agrees with the selection of other variations of this TAA strategy.
    29 Aug 2014, 11:56 PM Reply Like
  • tmdoherty
    , contributor
    Comments (1246) | Send Message
    Pick for December 2014 is CASH. The correlation between SSO and EDV is +0.996.


    YTD returns are 10.75%.


    Here are the 3-month returns according to my spreadsheet:


    SSO: 6.69%
    FEZ: -2.89%
    EEM: -8.23%
    ILF: -17.86%
    EPP: -9.36%
    EDV: 5.34%


    Hence, SSO would have been selected were it not for the high correlation between SSO and EDV. This is the same thing that happened last month. CASH was selected, but the pick would otherwise have been SSO, which would have returned 5.54%.


    1 Dec 2014, 07:19 PM Reply Like
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