Category: Relative Strength

Buy top X hold while in top Y

We have added a Hold Filter option to the Portfolio Relative Strength and RS - Combine Portfolios backtests.

When the Hold Filter is turned on, the ETFs will be held as long as they remain ranked in the top (or bottom) Y.

i.e. If you choose a Buy Top of 2 and a Hold rank of 4, then the backtest will invest in 2 ETFs, but will only rotate out of an ETF when it drops below the top 4.

Using the Hold Filter makes a model less reactive and as a consequence it reduces trade activity.  By not switching each and every time a security moves in and out of the top X, it can also result in fewer whipsaws.  However, the higher the hold rank number is, the less responsive to changes the model will be, so a balance must be struck.


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Note: the hold rank must be greater than the buy top / bottom number and be less than the number of securities in the chosen portfolio(s).

Using a Regime Ratio to switch between Mean Reversion and Relative Strength strategies

This example employs a simple credit spread style ratio to define the prevailing risk on / off regime and uses that to switch between different strategies.

When the High Yield / Treasury ratio is trending upwards (i.e. short MA above long MA) the backtest pursues a mean-reversion strategy, investing in the weakest short-term performers (buying wholesale) in a list of broad U.S. equity ETFs.

Conversely, when the HYG / IEI ratio trends down (short MA below long MA), the backtest switches to a Relative Strength strategy; buying the top five from a list of mixed asset class ETFs.   Selecting the strongest five securities from the list provides some diversification while also giving the backtest the opportunity, in bear markets, to allocate 80% to fixed income and, in the most severe periods, to avoid equities entirely. 



Specific parameters and ETFs are not the focus of this example, rather, it is intended to highlight the backtest functioanlity and to provide a starting point for subscribers to further research and develop.

Instructional video on how to use the Parameter Summary functionality for ETF Backtesting

Instructional video on how to use the Parameter Summary functionality.  #STUDY

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Dual Position Backtesting: diversify across rotation days

We have added two new rotation options to the Portfolio Relative Strength and Sequential Relative Strength Backtests:

  • Monthly (Dual Position) 
  • Weekly (Dual Position)

Choosing one of these options allows you to diversify across two rotation days.  For example, select Weekly (Dual Position) and set Position 1 to Tuesday and Position 2 to Friday.  In the chart below the yellow line shows the performance from rotating every Tuesday, the purple line is the Friday rotation, and the green line shows the combined equity curve.


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Diversifying across two rotation days hedges against going all-in on what could turn out to be the worst performing rotation day in future.  Similarly, though a particular day may have historically performed best, it is not guaranteed to always outperform.  Employing two different rotation days guards against that risk and in doing so, can provide a more realistic assessment of a strategy’s performance.

Layering 2 ETF Backtest Strategies For Enhancing Return

Layering 2 strategies on top of each other for better return -- and importantly this can improve the consistency on a year-to-year basis. The mean reversion strategies tend to add more return when things are volatile -- but less relative to the benchmark when the market is rising on low volatility. That said, low volatility uptrends are often an excellent environment for absolute gains anyway and you will naturally participate in such a market because mean-reversion has zero market timing associated with it.  That is, sometimes you will just track rather than outperform a low-volatility uptrend.... and that is a good thing.

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