Adding recession filter

Simply filtering out recessions (see post) and buying the top ranked fund during sell-offs (>1% stocks down >25% in a month) gives the equity curve below since 2003.  Stats are 33% annual return, exposure 50%, profit factor 7, sharpe >2.  Trades are weekly and the lows are not timed precisely (e.g. by using a “breadth flip”).

Actual trades are listed with a 20% profit target.

blog figs

It is apparent that the following are important for good returns:

1) Avoiding long strategies in recessions

2) Correct vehicle selection (e.g. momentum ranking)

These factors may be more important than precise timing – this warrants more investigation.

Note that sharp market falls are possible outside recessions (e.g. 1987, 2011) but are mostly limited in duration and magnitude.


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