Exploring model parameters (not curve-fitting)

The basic model buys the fund with highest one year price change (ROC252) after an intermediate correction (>1% US stocks down 25% in one month).

It is instructive to see the effect of “hold time” and “severity of correction” on returns.  Generally, deeper corrections provide faster returns but occur less frequently.  Two thirds of the returns are captured with a simple 2 month hold (over the last 10 years) and less than 50% exposure.  This underlines the importance of the capturing the rise from intermediate lows.

(Testing over a longer period is more difficult due to lack of breadth data).

Amibroker code is shown at the bottom of the post.

blog figs

Most combinations of hold time and pullback severity give annual returns above 24%.  The results at the back corner of the plot (short hold and deep pullback) have higher risk adjusted returns and Sharpe but lower overall returns due to lower exposure (see next 3 plots).

blog figs

blog figs

blog figs

Interestingly, testing the strength of the breadth thrust for entry with a fixed hold time showed little effect.  Therefore, the key strategy is to buy momentum at an intermediate low and hold around 6 months to capture the bulk of the returns.  The recession filter is also active.  This is important to avoid buying into “waterfall” declines.


Buy =   r_filt AND d1>=Optimize(“d25%”,1,0,2,0.5);

Sell =  0;

PositionScore = IIf(ROC(C,252)>0 , ROC(C,252),0);





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