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Regrettably, I somehow failed to record last night’s session. My sincere apologies.
To summarise some of the key points:
1. The new RealTest version of the course is currently being uploaded and will be ready for release in January 2024. You will be able to see the new course but will not be able to access it as yet. The new course will have some extra content, such as All Weather strategies and more of a focus on portfolio volatility (see below).
2. Craig will be taking annual leave in early October. Ensure any important coding queries are forwarded to him beforehand.
3. Drawdowns. A bit of an elephant in the room at the moment. I get it. It’s tough for the very vast majority. Moving forward we’ll be spending a lot more time on the following to, hopefully, ease the drawdowns and make the trading journey more comfortable – or as comfortable as it can be. REMEMBER: the is no reward without some kind of risk.
Our focus going forward will be on strategy/portfolio volatility, exploiting numerous equity pathways, and strategy correlations.
Volatility
Volatility refers to the degree of variation in the returns of the portfolio over time. It is a measure of the portfolio’s risk or the extent to which its value fluctuates. In simpler terms, a highly volatile portfolio experiences large and frequent price swings, while a less volatile portfolio has more stable and predictable returns.The RealTest formula for volatility is
Volatility: {%2} StdDev(S.NetPct,Periods)*SQR(S.BPY)
Below is a guide on where basic strategy types (on their own) sit within the volatility matrix. Combining strategies may see these change. In layman’s terms, once volatility gets above 20% then the ride becomes that much more difficult to handle.
Equity Pathways
A singular equity pathway is prone to the nuances of the market, i.e. if the strategy is out of sync, then a sustained period of sideways or drawdown will occur. There is not necessarily anything wrong with this. A single equity growth pathway strategy can be ‘tuned’ to current conditions at irregular intervals. However, a strategy with multiple equity pathways probably doesn’t need to be tuned because it automatically picks up the variability of the market nuances.A basic example (and I will code this up when I get a chance). Consider a trend system with a Regime Filter lookback of 200 days. It will provide a single equity growth pathway. However, creating a strategy that uses various length lookbacks, say 50 days, 100 days, 150 days, 200 days and 250 days now has 5 equity pathways. All will look and act a little different. Irregular tuning is now not needed. The different ‘speeds’ of the look-backs will account for various nuances of the market.
Correlation
Creating lower correlated strategies can be challenging, especially for longer-term strategies. The idea is that different strategies will have drawdowns or be ‘out-of-sync’ with the market at different times. If we can build lower correlated strategies then, in theory, the equity growth pathway should be smoother, specifically a strategy that is struggling with current conditions is being offset to some degree by another strategy.Below is the correlation matrix of my day trade strategies. I have 4 long/short day trade and a short side multi day mean reversion (HFT). Note that most have very low to slightly negative correlations. There are no bright green squares that show high correlations.
In summary, our focus going forward is to
(1) create lower volatility strategies
(2) create multiple equity growth pathways
(3) create lower correlated strategiesAgain, apologies for not recording last night’s discussion.
Nick
After implementing my All Weather portfolio for US ETFs in my retirement account, I have been working on a second All Weather portfolio for the ASX.
This one uses two portfolios; one defensive and one offensive. The defensive gets 50% allocation to a single ETF, and the offensive gets 50% allocation across 2 ETFs.
CAGR: +10.9% (Benchmark: +7.8%)
maxDD: -10.2% (Benchmark -35.8%)
Vola: 9.3% (Benchmark 15.6%)
Corr: 0.21
Terry,
We’ll be discussing this in next week’s call, but basically, our focus is pushing for multiple equity pathways and lower volatility, specifically moving a move away from the single print maxDD as a guideline.What I’m doing is trading a series of lower-risk, lower-leveraged, MOC systems that are uncorrelated. On their own, they don’t look like much, but, as Kate alluded to, combined they become quite potent. More importantly, we’re not relying on a single setup/equity pathway. This seems to be the trap for many in the MOC/MR space over the last 18 months.
Here are the current stats, where I have 3x Long/Short MOC systems and have added in the short version of the HFT (multi day). The long HFT is traded in another account.
Now, when you put them together, the correlations are very low – not much green or red on the page. As you can see above, leverage is still well controlled, meaning I have scope to add more – so long as the correlations remain low.
