Len’s Journal

[LEONARDZIR]

July Results

Main trading vehicles
US momo -.32%
US MOC R1K +0.5%
US MR R1K +0.1%

I started a small account (started on July 10th)
US Nasdaq 100 -7%.
This is a very volatile account so started small. Will add on pullbacks or as I get comfortable with the volatility

[LEONARDZIR]

I raised this question with Nick and I thought I would raise it in the forum
I am trading 2 MR systems both with very similar entries. One system has an MOC exit and the other system exits after one positive close. I am wonder whether it is worth trading the latter system. The advantages of the MOC are less volatility, less exposure, higher CAR and less drawdown. The correlation between the 2 systems is less than I would have thought 0.37 which favors trading the 2 systems . I am leaning towards trading only the MOC.
Interested in other peoples thoughts.

[SaidBitar]

Personally i will trade and i trade both at the same time
there is additional risk and you are more exposed with both systems but somehow they work good together

there are two time consuming stuff that you can do that will help you decide
1- run single backtest on MOC and save the equity to a custom ticker
run single backtest on MRV and save the equity to a custom ticker
create small afl to buy and hold these two tickers
and compare the equity curves for all and check what you like

2- (time consuming stuff)
run backtest on each system and put the results in a spreadsheet
run exploration of the S&P500 for the close value over the same duration of the backtest
for each day check what the S&P500 did and how the systems reacted, this will help you to know what to expect from each system under different circumstances for example you will notice on an up day on the S&P (>0.5%) the MOC system will be quite and if there are some trades their number is small same can be said for the MRV but the difference if you are already holding some stocks in the MRV system they will benefit from this additional boost. this is when the MRV is good to have the opposite will give you when the MRV is bad to have especially with gap downs the chances of having winning trade from any prior open positions will become very small

maybe i added more confusion (sorry for this) but what i want to say is test it or even better if you can try them together for some time and see

[JulianCohen]

I think the fact that the correlation is small means it is worth your time trading the two together.

It may look at first glance that the entries are similar, and they are certainly going to have the same entry more often that you might initially like, but the fact the correlation is small means that they have a lot more differences than similarities. The similarities probably stand out more because you notice them easier when comparing the systems.

[LEONARDZIR]

Thank you Julian and Said. Will test as Said suggests however it is hard to ignore the lower volatility, higher CAR, lower exposure and lower drawdown of the MOC system.

[JulianCohen]

Len Zir wrote:

Thank you Julian and Said. Will test as Said suggests however it is hard to ignore the lower volatility, higher CAR, lower exposure and lower drawdown of the MOC system.

So maybe split it 70/30 or 80/20…..I have most of my funds in the MOC system but the trend following systems have some too. That keeps me mentally happy during months like we have just had where the mean reversion systems are doing not a lot but the trend following does well.

I know you have the momentum system running, but maybe think of these two mean reversion systems in the same way. Diversification.

[ScottMcNab]

Len Zir wrote:

I raised this question with Nick and I thought I would raise it in the forum
I am trading 2 MR systems both with very similar entries. One system has an MOC exit and the other system exits after one positive close. I am wonder whether it is worth trading the latter system. The advantages of the MOC are less volatility, less exposure, higher CAR and less drawdown. The correlation between the 2 systems is less than I would have thought 0.37 which favors trading the 2 systems . I am leaning towards trading only the MOC.
Interested in other peoples thoughts.

Another angle to consider…..I went MOC as I was able to use the same equity twice a day (US and ASX) rather than once a day…so two systems with low selection bias and 17-20% returns each would seem to combine to produce an outcome better than one great system at 25-30%. I don’t see others doing this however which is an ongoing source of concern. MOC was also less time intensive.

[RobGiles]

Hi Len,

Thanks for raising this as I am intending to have 2 different MR systems as well, one being a MOC system which I’m going live with tonight. For what its worth, when I finish coding up the 2nd system, if it has a correlation as low as 0.37, then that would achieve my aim of having two MR systems that are essentially not correlated, hence I would trade both.

[LEONARDZIR]

Actually, I don’t think the low correlation is the whole story. The combined equity of MOC and MR swing is lower, than MOC, and has higher drawdown plus more exposure.
My idea of using multiple systems is having an MR system on more than one market. However my MOC system really does best with the Russell 1000.
My current diversification really comes from combining USMOMO and now Nasdaq 100 MOMO with an MOC on the russell 1000. That is three different (although correlated )markets The MOC system requires pullbacks for entry and profit and the momo systems profit in a rising market.

I am inclined to just trade MOC for an mr system unless I can develop an MR swing system that has very different entries from my MOC and approaches the CAR/drawdown of the MOC.

[LEONARDZIR]

To give you a sense of my numbers I just ran a single backtest on my MOC and MR for the last 10 years.

MR CAR 33% DD 12.46%
MOC CAR 41.75% DD 9.48.

I am running both with some selection bias
at about 90% of days and 95% of signals.
I was running pretty close to virtually no selection bias on both but have been trying more selection bias to see if I could goose up returns. I run my operating system on both systems daily and so far actual trading and amibroker tracking are pretty identical.
Also I run 4:1 leverage on the MOC and 2:1 leverage on MR.
I have been running the MOC for one year and the MR in its current iteration for 6 months

[ScottMcNab]

What about the MR on the ASX perhaps Len ?

[LEONARDZIR]

Scott interesting idea. I like the fact that you use your equity twice a day which basically increases the frequency of trades without increasing selection bias. I’ll look into it. Thanks

[JulianCohen]

Hi Len,

what do you mean by selection bias on 90% of days? Do you mean that 10% of days have a greater than allowed number of signals?

And also how have you found loosening up the selection bias? I have been running my systems on a tight selection bias basis, 97% or better, and I am finding the returns the last couple of months are a little flat, but that is probably due to the markets and not my system.

Therefore I should probably test the last few months to see if opening up the entry criteria will yield an improvement I am interested to see how ‘selection bias loosening’ has worked for you.

[ScottMcNab]

Len Zir wrote:

Scott interesting idea. I like the fact that you use your equity twice a day which basically increases the frequency of trades without increasing selection bias. I’ll look into it. Thanks

I was meaning to try the MRV system on the ASX Len rather than the MOC as it seemed a shame not to use a system with such good metrics. …. could also do a ASX/US MOC too but there is a limit to how much time each person can allocate for all of this.

[ScottMcNab]

“Selection bias loosening”

A career in media relations beckons…

Are we having a brain fade here guys ? After working so hard and producing such great systems with low selection bias ! A plot of buysignals seems to indicate that much of this year has been a period of low volatility not particularly conducive to mean reversion….so loosening of selection bias would produce many more trades…..looking back through the years such periods can often be seen but don’t last forever….its almost like the market is tempting us to fall for that mistake….the Sirens call…..?

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