Bear market and 2008

StrataSearch will find what you tell it to, but what should that be? Will the same criteria work across different Sectors? Different time periods? Here we discuss the ins and outs of OneClick Searches.

Re: Bear market and 2008

Postby Dacamic » Fri Jan 28, 2011 4:38 pm

Dennis,

Like you, I prefer to pay a lot of attention to drawdowns during both development and live trading.

An important point made in Faber's paper (linked by Kevin) is that return can actually be enhanced by reducing volatility. It was good for me to be reminded of that.
Steve
Dacamic
 
Posts: 457
Joined: Wed Nov 30, 2005 12:40 pm

Re: Bear market and 2008

Postby Kevin_in_GA » Fri Jan 28, 2011 4:58 pm

I would suggest focusing on the Sharpe ratio. What you'll see is that you'll have the highest risk-adjusted returns over time. Otherwise you could just stay in bonds and fixed income securities and you'll have met your primary goal.

From both a CAGR and simplicity standpoint, this approach suits me fine.
Kevin_in_GA
 
Posts: 171
Joined: Wed Aug 04, 2010 10:14 am

Re: Bear market and 2008

Postby Dacamic » Fri Jan 28, 2011 10:36 pm

For normalizing returns, I prefer to define risk in terms of drawdowns rather than return volatility, and thus the Return Retracement Ratio is better suited to me. Since the Return Retracement Ratio calculation is portfolio-based, I sometimes use a crude derivative to help avoid the effects of portfolio bias: Monte Carlo Average Annual Return / Monte Carlo Average Drawdown.

Although they are based on different calculations and ideas, it is certainly possible that Return Retracement Ratio and Sharpe Ratio often bring people to the same conclusions in practice (I wouldn't be surprised if they did). So, please accept my thoughts only as my personal preference.

Regardless of my ramblings above, your point is well-taken; return must be considered in the context of its related risk (and vice versa).
Steve
Dacamic
 
Posts: 457
Joined: Wed Nov 30, 2005 12:40 pm

Re: Bear market and 2008

Postby Schutten » Sat Jan 29, 2011 11:39 am

What I am trying to avoid is a big drawdown in 2008. As you can see in the equity curve 2008 is just bad. The curve is 100% out of sample from 1990.
Now can I place all kinds of filters on this, but this just will be some kind of curve fitting.
This is build without sharpratio selection. Would this have been of any help??

Regards,

Dennis

Image
Schutten
 
Posts: 42
Joined: Thu Oct 25, 2007 6:17 am

Re: Bear market and 2008

Postby Dacamic » Tue Feb 01, 2011 4:15 pm

Schutten wrote:This is build without sharpratio selection. Would this have been of any help??

I have difficulty answering questions of this nature because there are more variables than my mind can comfortably handle. So -- rather than guess -- I occasionally try different metrics to see whether they provide any benefit.

On a separate note, the right side of the subject equity curve shows some deterioration in system performance (beyond the 2008 drawdown). I've recently seen that degradation in a few other systems. That kinda divergence makes me think the market is about to experience a trend change.
Steve
Dacamic
 
Posts: 457
Joined: Wed Nov 30, 2005 12:40 pm

Re: Bear market and 2008

Postby Schutten » Tue Feb 01, 2011 5:10 pm

I am noticing that divirgence as well. Still I hope the uptrend is going to continue.
The market is having a positive bias for quite a number of years now and finding a system which trades short and is robust enough to survive in bull markets I have not found (yet)
Schutten
 
Posts: 42
Joined: Thu Oct 25, 2007 6:17 am

Previous

Return to OneClick Searches and Scoring