Sequential Relative Strength Stock and ETF Backtesting

Jun 20, 2020 in Video

Note: during the launch of our new application called Sequential Relative Strength, we are allowing all accounts to create portfolios using individual stocks. This app module is able to expand on the core Portfolio Relative Strength and add a 2nd stage to help improve entry points.

 

The idea behind this module is to more easily combine intermediate-term relative strength with short-term mean reversion. Short term weakness within a strong long-term trend is normal. Try running your backtest with this mean-reversion added and then compare it to a model which does the opposite. Analyze the results. Think about the volatility of the resulting equity curve. Look at sub-periods. Are the results highly lumpy? Were the results achieved in earlier years but fade in recent years? These are some of the things ETFreplay was created to do -- not just look at the return of a strategy -- but to decompose it and analyze it to try to find something that is more robust. #STUDY

 

 to expand video on screen, click the '4 expanding arrows' icon in the bottom right corner of the video screen. Use the settings icon to change to 1080 quality if it seems at all blurry

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Regime Driven Mean Reversion

Jun 10, 2020 in mean reversion | Regime Change

Late last year we produced a video that showed how two different strategies, relative strength and mean reversion, could be layered on top of each other.  That example went through each of the constituent backtests separately, in order to explain the mechanics of the process.

The example below shows how such a dual-layered strategy can be run in a single backtest.  The first layer employs the SPY / VEU ratio moving average as a regime switch to dynamically alternate between whichever is stronger; U.S. or International stocks.  Then, the second layer picks the weakest short-term performer within that chosen asset class.

To keep it simple, we have used the same basic U.S. (MDY, IWM, SPY and QQQ) and international (EWA, EWC, EWH and EWS) ETFs that we have used in previous examples.

 

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