Adjusting Strategies For Underlying Market Conditions

Jul. 20, 2020 8:33 AM ETTQQQ, SOXL, SPXL, FAS, LABU, TNA, UDOW, SPY8 Comments
Josef Friedman profile picture
Josef Friedman
733 Followers

Summary

  • Specter/FF5 has powerful trend detection capabilities, facilitating automatic strategy adjustment.
  • Don't play monkey see, monkey do with an algorithm you wrote.
  • Specter/FF5 information can significantly improve human decision making.

The Legend

I started creating algorithmic investment strategies in the early 1980s, never failed being disappointed. My current project started in early 2019, mostly to see if a redesign of the analytical market paradigm could improve algorithmic investing returns.

Understanding Complex Strategies and Market Timing describe Specter/FF5 design and performance. In this article, the 13em combination will be used for performance numbers. The Specter/FF5 signals are derived from technical details (above/below and up/down) of a 13 day exponential moving average and a 13 day simple moving average based on the weighted closing price of SPY.

Strategy Adjustment

It is relatively self-evident that investment strategies have to be adjusted to reflect current market conditions. It is not good to be flat when the market is rising, and the down escalator can be unpleasant if one is long.

Buy and Hold return is par for investment strategies. It is possible to have a viable strategy that doesn't beat buy and hold. Then you have to look around for convincing reasons that the strategy is worth the effort of playing. Song and dance presentations and internal monologues are worth avoiding; there is only about a 50% chance you will make the correct choice.

At the end of the day, an active investor requires a portfolio of sub-strategies that on aggregate, beat buy and hold. Otherwise, why not just buy and play polo all day?

Negative Feedback: The May - June Period

"Nobody beats Vitas Gerulaitis 17 times in a row."

Visualizing potential negative feedback situations, and one's reaction to them is an important human survival capability.

Created by the author with data from Norgate

$A is buy and hold (A = All) current value of each original dollar invested. $L (L = Long) is the current value of each dollar when Specter/FF5 is long. $F is the current value when the algorithm

This article was written by

Josef Friedman profile picture
733 Followers
Software developer, Excel VBA for quantitative technical analysis, specializing in analyzing groups of equities and ETFs.  Articles document development of market models and game theory.  Chess master.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TQQQ over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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