Looking at my SPY chart I see that my trading system has given me an exit signal at the end-of-day today, signaling it is time to get out of the long positions. The exit signal is rather small on my chart. It looks like a small blue bubble. But what a long ride it was, starting from back in September 2nd, 2010. See attached chart.
The nature of these signals is that we do not know how long the down side will last. It is impossible to predict the strength and duration of the down side. That is why as a minimum, I will put in protective portfolio insurance on my 401K. Actually I had placed a partial position last night for market open today and after I came home from work, I was happy to see that my order took. It was a limit order. I will wait for a small bounce to install the rest of my position. Next time I will write about portfolio insurance. Here is a hint: We have cars and buy car insurance on it. We buy a house and buy home insurance on it. So why don’t we have 401K portfolio insurance? Because most investors do not know what it is, and even many financial advisors don’t know or how to use it effectively. More on it next time….
As I see the downslope, I get the exit signal too.
ReplyDeleteIshwar
Rahul:
ReplyDeleteThanks for taking the time to educate uninformed people like myself. Hopefully, over time we get to learn how your trading system works.
I took a look at MetaStock. Clearly you have spent years developing a system that has worked out well for you. I was wondering... when you look back at the last 10 years - SPY is at about the same level it was at the start of the period. How has the portfolio that you actively manage done relative to SPY?
Paul
Paul, I have been using technical analysis actively since 2003. I started my learning in 2002, after I realized I did not like losing money and since I did not have a good finanical advisor. I found I enjoyed the learning - over weekends and nights. Since 2003 - 2011, the worst year I have had was 2008 with a loss no more than -3%. The best was about 29%. I have learned more in the last 7 years than the first 2. The first couple of years can be dangerous as you can think you know more than you really do.. The learning is somewhat asymptotic. Takes a while to integrate into your own personality. We each deal differently with gains and losses, euphoria and fear. But with time, it has all clicked in place. I am very risk averse with my accounts.
ReplyDeleteRahul
Rahul: In the chart, why isn't there an arrow? Does it mean that the signal is weak?
ReplyDeleteRajiv,
ReplyDeleteThe system weaves in several factors and as good as it is, it is more biased to the upside, and can be quirky at times..for e.g exit signal, then market dips and reverses and keeps going up but the expert system does not give a long signal. I do look at other indicators along with the expert system.
I treat the exit and down signals as the same, although technically they are different. The Up and down logic has some differences and are not mirror images. The system generates less down signals; more exits on long instead.
Markets usually take a while to top so I expect we will see more assults on the high and assaults can win or lose depending on the ferocity of the bear.
Sice I am very risk averse, I accept the exit signal as time to take a more neutral bias in my portfolio for now, and change from all bullish. If I see a change in behavior, I will switch back to more bullish.
That's helpful. Is your system mostly trending or is it trending with a combination of oscillator/divergence? Also, any idea on what the back test results have been (performance as well as sharpe ratio?).
ReplyDeleteRajiv, The SPY expert system is based on a combination of trending, volatility and candlestick indicators.
ReplyDeleteBacktesting results not available; but visually looks quite good over last 10 years.
Trading systems, particularly single dimensional ones do mediocre on indexes, better on individual charts, I have found from my backtesting. I am more cautious with indexes. But it does provide some confirmation and guideline.