Binary Market Timing based on XLI/XLU for EoM, EoW or EoD traders
Since the release of the previous post regarding TAA strategies, Aurelia and I have been working on the implementation of another market timing filter Kevin McGrath developed on the Stockfetcher forum. By using the XLI and XLU etf pair as proxies for bullishness and bearishness, the allocation strategy is simplified down to a binary process.
To SPY or not to SPY?
Thanks to Aurelia's continuous support in the development of the TAA strategy I have the opportunity to present a variation of the rotation system. Let's postulate that the stock market has two states: greed against fear or "risk on" opposite to "risk off" mode. When risk is in vogue stocks tend to rise and bonds drop, while in corrections, the opposite happens: investors flee from stocks into bonds.
Aurelia observed that Kevin McGrath's basic TAA model (see prior postings) with EFA, IWM, SPY and TLT, reflects these two risk stages. When risk is "on", the strategy allocates into IWM (or EFA) and when risk is "off" funds flow into TLT. However when the strategy indicates to rotate to SPY, the market predominantly seems to be in the middle of a risk transition. Meaning the selection of SPY is indicative for a change in risk acceptance:
- risk shifts to "on": TLT > SPY > IWM or
- risk shifts to "off": IWM > SPY > TLT.
See the upper sub pane window on the chart. Notice the (negative) profit contribution for SPY too (9x: selection of SPY for 9 months, code snippet courtesy of ST. Thanks!)
Aurelia observed that Kevin McGrath's basic TAA model (see prior postings) with EFA, IWM, SPY and TLT, reflects these two risk stages. When risk is "on", the strategy allocates into IWM (or EFA) and when risk is "off" funds flow into TLT. However when the strategy indicates to rotate to SPY, the market predominantly seems to be in the middle of a risk transition. Meaning the selection of SPY is indicative for a change in risk acceptance:
- risk shifts to "on": TLT > SPY > IWM or
- risk shifts to "off": IWM > SPY > TLT.
See the upper sub pane window on the chart. Notice the (negative) profit contribution for SPY too (9x: selection of SPY for 9 months, code snippet courtesy of ST. Thanks!)
New milestone: 30,000 pageviews
Not even two months have passed since the site stats of this blog showed 20,000 pageviews and now the 30,000 mark is hit already. Thank you for dropping in!
While visitors at first mainly came from the traditional English speaking coutries, since a few weeks the audience is listening in France, Germany, Sweden, The Netherlands and even Ukraine too, to mention only the higher traffic countries (next to Australia, Canada and the USA of course). See the Earth globe on the right hand side for total visitor distribution from all over the world. For some reason that yellow spot in the big blue Pacific always makes me smile :-)
Please feel free to post in the comment section. If you feel more comfortable, do not hesitate to write in French or German. In those languages I should menage, with some help from Google translate if needed, but especially my Українська мова is a bit rusty though ;-)
I would love to hear from you how this blog became so popular among you people. Where did you find the bread crumbs that did lead you to this blog in the first place? Please do post links to referring forums and sites.
So thanks again and goodbye, au revoir, auf Wiedersehen, hej då, tot ziens, до побачення !
While visitors at first mainly came from the traditional English speaking coutries, since a few weeks the audience is listening in France, Germany, Sweden, The Netherlands and even Ukraine too, to mention only the higher traffic countries (next to Australia, Canada and the USA of course). See the Earth globe on the right hand side for total visitor distribution from all over the world. For some reason that yellow spot in the big blue Pacific always makes me smile :-)
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| La bienvenue | Willkommen | Välkommen | Welkom | Ласкаво просимо |
Please feel free to post in the comment section. If you feel more comfortable, do not hesitate to write in French or German. In those languages I should menage, with some help from Google translate if needed, but especially my Українська мова is a bit rusty though ;-)
I would love to hear from you how this blog became so popular among you people. Where did you find the bread crumbs that did lead you to this blog in the first place? Please do post links to referring forums and sites.
So thanks again and goodbye, au revoir, auf Wiedersehen, hej då, tot ziens, до побачення !
Monthly Tactical Asset Allocation System: Equity curve added
Writing the thinkscript code for an equity curve for the Tactical Asset Allocation System posed quite a challenge. Scripting a dynamical all in system seemed like solving the chicken and egg dilemma, but finally the study is ready to be published. The TAA-system is explained here.
Tactical Asset Allocation: 28, 29, 30. Rotate!
How about a long term trading system that needs only some 30 seconds each month to keep track? Amazing, but now by all means doable. Thanks to Kevin McGrath's Tactical Asset Allocation system. Kevin claims a combined capital growth of 70+% over the last five years and he has backtested the living daylights out of his system settings as well as the ETF selection.
In short: for this particular long only TAA system one determines at the end of each month the relative strength of four ETF's: EFA, IWM, SPY and AGG*. The ETF with the highest reading is considered strongest. That ETF is the pick for the next month and all assigned assets are then rotated accordingly. Even better: now thinkscript takes care of the monthly system evaluation. The only action for the user to do is pull up the chart and next enter one sell and one buy order. Nothing more, nothing less. Extremely simple, extremely effective!
In short: for this particular long only TAA system one determines at the end of each month the relative strength of four ETF's: EFA, IWM, SPY and AGG*. The ETF with the highest reading is considered strongest. That ETF is the pick for the next month and all assigned assets are then rotated accordingly. Even better: now thinkscript takes care of the monthly system evaluation. The only action for the user to do is pull up the chart and next enter one sell and one buy order. Nothing more, nothing less. Extremely simple, extremely effective!
Milestone: 20,000 pageviews
Based on current visitor traffic my pageview stats will hit the 20,000 mark during the upcoming weekend. Of course this site is small fry in the blogosphere, but to me this is a great encouragement to continue posting. At the turn of the year the count was 16,000 and now, only some six weeks later 4,000 more again. A big thank you to all my visitors!
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