Tuesday, January 12, 2010

Rotation Tells


With the VIX hitting another intraday low yesterday below 17 the mean reversion rubber band is stretched to historic limits not seen for several years, so caution is the current watchword for Longs.
While we wait to see how the current market dynamic resolve here's another approach to my Lazy Man's rotation model.
This time I'm using Worden Bros Telechart program. For this test I'm using a search basket of 10 ETFs, a bit larger than my Lazy Man's 4 ETF model. And, for a momentum indicator, we've set up a 10 bar linear regression channel to complement our standard 30 linear regression channel indicator.
One of the nice things about Telechart (Gold EOD version shown) is the ability to simply right click the mouse cursor on any chart indicator and the program will sort your selected watchlist by a number of parameters related to that indicator. In this case I've chosen "Visual Slope" as the sort criteria. I could have easily substituted either canned watchlists or any other custom watchlist in lieu of my "Rotation" list.
For sort results, I'm really only interested in the relative slope value and the beta although there are about 30 different metrics I can examine, if so inclined.
Another nice feature of Telechart is the ability to sort indicator data based on daily, 2,3,4,5 day, weekly, monthly, etc. bars, so you can pretty quickly separate the one night stands from the BFFs.
In this case, old reliable IWM comes out number one after sorting the LR10 on 2,3 and 4 day bars and looks like the best shot going forward short term.
It easy to export Telechart data into a number of formats for recycling into other analytical programs including older versions of Trade Station and looking forward, I'm working on graphical interface to reflect the equity curve of the Telechart rotational model.
If there's any interest I'll explore some of the ways that the EasyScan feature can consistently find good momentum candidates . . long or short.

5 comments:

gohara said...

Hi Bob,

I've been experimenting with that approach using Worden's Stockfinder which provides backtesting. You can port over your watchlists from Telechart and the Backscanner will backtest according to any momentum rules and indicators you create. I added SH and XLE to your bacic 4 symbols with nice results using a 2, 12 and 24 bar rate of change momentum indicator on weekly bars.

I'll experiment with your linear regression idea.

Best,
Gary

bzbtrader said...

Gary,
Thanks for the comment. I didn't realize you could backtest with Stockfinder. Look forward to your results. BTW, SH was one of the original four- EEM, DBC,QQQQ and SH. SPY was never part of the rotational group...it was just used as a baseline.

gohara said...

Bob,

I'd be happy to share the Stockfinder layout if you have that program.
My CAGR was 32% vs SPY 2.3% from 1/1/2004. 41 trades, Gain/Loss=4.5. Avg. return/trade=9.6% held 15 weeks.
I bought the top 2 weekly, ranked by 4, 12 and 24 week rate of change on QLD-EEM-XLE-DBC and SH.
Regards,
Gary

Damian said...

Gohara - I have Stockfinder, but I can't see how you test such a system in it given that (as far as I can tell) it only works on one symbol at a time - so the program seems to have no idea that you're looking at multiple symbols. Is this your understanding?

gohara said...

Damian,
Stockfinder backscanner will go through your entire watchlist each bar and buy/sell any of the symbols that meet a RULE.
In a rotation system, I create an indicator that ranks all the securities according to some formula and then create a rule that says "buy if that indicator Rank=1", Sell if Rank>1. Unfortunately, the ranking has to be done using "blocks" not realcode. There is a special block that ranks your watchlist. For a good example of this, go to Worden Forums and under the Stockfinder forums, search for "ranking". The support guy, Bruce, has a "blocks" diagram which can be imported and modified for your purpose.
It works well but it's a hassle using "blocks".

Best,
Gary