Share New Research 
Intro
Superior algo returns can be thought of as being the result of two components: a great strategy regarding ‘what stocks to buy’ (the stock selection component, SEL) and a ‘clever timing’ (the in & out component, I/O) regarding when we are ‘in’ the market and hold the stocks versus when we are ‘out’ of the market and hold alternative assets such as bonds. We often focus on optimizing SEL and tend to neglect I/O; thus, for an important discussion of recent I/O tactics, see here.
Focus of this thread: Optimal SEL + I/O combinations
It is worthwhile to separately optimize SEL and I/O. However, the ultimate total return will also be determined by a certain synergy or dissonance between the two components. So, it seems that we won’t get around the arduous task of individually testing (all possible) combinations to identify optimal SEL + I/O pairs, which is the eventual focus of this thread. I reckon a preparatory step can be to dig up all the hidden SEL and I/O treasures from this forum and beyond to see what inputs are available for the combinations.
Ultimate objective
Let's get rich together, why not?
Peter Guenther
(Simplified) Demonstration of concept: SEL[“QQQ”] + I/O[“In & Out”]
In the following backtest, I combine a simple tech stock selection strategy, via buying the QQQ ETF, with the 3 Nov 2020 version of the “In & Out” strategy, which is one possible in & out-type tactic (see the In & Out thread for more tactics; link above). The backtest is from 1 Jan 2008 to 30 Oct 2020. The total return is 1,723%.
The components seem to integrate nicely: the QQQ alone (no in & out) would have yielded about 515% during the backtest period, while the In & Out strategy without a tech selection (only holding the market, SPY) would have resulted in about 1,100%.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Peter Guenther
And an additional (simplified) application, combining a yet more specific tech stock selection, the semiconductor industry, with the In & Out algo. Below are the specs for the same backtest period as above.
SEL[“SOXX”] + I/O[“In & Out”]
Total return: 1,686%
SOXX alone (i.e., always in): 559%
Implications
The In & Out combines slightly better with the QQQ selection (see above) than the SOXX selection, improving the returns from 515% to 1,723% versus from 559% to 1,686%.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Nathan Swenson
Just messing around with Flex4 QQQ version. Changing TLT and IEF to TMF and TYD pumps results up to 3539% return.
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Peter Guenther
Nathan Swenson: Absolutely, and great point! If we really trust our strategy, leveraged products, such as the 3 x leveraged bond ETFs, can substantially boost returns. In the attached backtest, I have taken it one step further and used 3 x leverage for all holdings, the 'in' side and the 'out' side. Of course, one would not put all the money on a highly leveraged strategy like this. The max drawdown is 50%+, so this can be psychologically quite distressing. It may be something for a (small) portion of one's total investment, if one feels comfortable with leveraged products.
3 x leveraged SEL[“QQQ”] + I/O[“In & Out”]
'In' holdings: TQQQ
'Out' holdings: TMF, TYD (as per Nathan's test above)
Total returns: 21,882%
Note: The In & Out is the latest 'lazy trader edition', reducing the total number of trades from above 3,000 (see in the QQQ version above) to 207 ... 207 glorious trades to get us to the 20,000%+ :)
As always, for details regarding the latest versions of I/O strategies, see our discussion here.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Nathan Swenson
Wow! Well, I wouldn't likely use TQQQ due to the decay, For bonds, my thinking is that holding period is shorter and they should be less volatile resulting in less decay. Anyway, that was my thinking. Those results are amazing!
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Matthew Wormington
Per comments made in the other "In and Out" thread, perhaps the risk-off asset selection is at least as critical as the risk-on asset selcetion to provide good performance in the future.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Mateusz Pulka
Peter Guenther
If may I ask about your last algo.
You set symbol for long order:
self.HLD_IN = {self.STKS: 1}
but in the code when you want to send an order to market you have:
wt[self.MRKT] = 1
Is it a mistake or is it right? Cause HLD_IN parameter suggests that here you should have:
wt[self.STKS] = 1
By the way:
Great work with algorith.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Joshua Tsai
You can use TIPS instead of bonds (to slightly reduce returns, but it's widely applicable). Then again, the US gov's only option during bad economic times is to lower rates, and it's very unlikely the Fed would decrease rates as a section of the economy was faltering. I've also looked into going long volatility during market downturns, but it hasn't worked well.
I've attached the global ETF rotation strategy that was modified from the tutorial one on Quantconnect.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Peter Guenther
gpw radar Thanks for joining this thread and well spotted! This looks like a bug from combining the In & Out with the QQQ stock selection; will post an update soon.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Joshua Tsai
Using TIPs we achieve similar returns, but the Sharpe is much worse.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Peter Guenther
Corrected: 3 x leveraged SEL[“QQQ”] + I/O[“In & Out”]
'In' holdings: TQQQ
'Out' holdings: TMF, TYD (as per Nathan's test above)
Total returns: 15,438%
Not quite the 20,000%+, still some way to go :)
Thanks to gpw radar for spotting a bug in the earlier code which I think resulted in holding the SPY and TQQQ in parallel, i.e. on margin / leveraged. In future editions, I will try and record the leverage so that similar issues pop up quickly,
At least the max drawdown also decreased from 50%+ to 40%+, still quite steep of course.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Peter Guenther
@Joshua Tsai: Thanks for sharing these results regarding TIPs, a long volatility strategy, and the ETF rotation outline. Much appreciated and great thinking!
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Tien Duy Vo
Thanks for sharing the code. I used your last version ( Corrected: 3 x leveraged SEL[“QQQ”] + I/O[“In & Out”] ) in a small backtest from 2019-now. However, based on the orders I can not see any "In" or "Out" orders. The strategy buys TQQQ, TMF, and TYD and sells it in the same time frame. Despite all this, the performance looked good. I still wonder whether this was intentional.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Nathan Swenson
Based on corrected version and only using TQQQ and TMF, no TYD.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Nathan Swenson
Almost qualifies for competition with nearly 80% alpha score. Pretty tough for anyone to beat 23000% return over this period!
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Nathan Swenson
Large drawdown of course, but otherwise good numbers.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Tien Duy Vo
Nathan Swenson Which version did you used? Did you checked the orders?
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Peter Guenther
Great series of tests there Nathan Swenson, thanks for sharing! You cracked the 20,000% again, nice :)
Tien Duy Vo: Thanks for joining the discussion! I am not 100% whether you looked at the order data below, this is from the Corrected algo version above running from 1 Jan 2008 to today. I have copied in a part of 2019. What should be happening is that the algo alternates between holding the leveraged bond ETFs (TMF and TYD) versus holding the leveraged tech stock selection (TQQQ). For example, see the first lines with the negative quantities (-70701 and -29249): it's selling the bonds on 18 Jan 2019 which it was holding before. In parallel, it's buying the TQQQ (see positive quantity 55093). Then on 24 Jun 2019, it's selling the TQQQ quantity (-55093) and it's investing the money in the bonds (see positive quantities). So, the algo sometimes holds the TQQQ and sometimes the bonds, based on the in & out indicator (see the variable self.be_in in the code). Not sure whether this answers the question?
(Sidenote: there are some "invalid" entries in there, were it doesn't seem to be able to get a price for TQQQ. However, this doesn't seem to affect the holdings.)
Time Symbol Price Quantity Type Status Value Tag 2019-01-18T16:30:00Z TMF 18.09502674 -70701 Market Filled -1279336.485 2019-01-18T16:30:00Z TYD 41.89420637 -29249 Market Filled -1225363.642 2019-01-18T16:30:00Z TQQQ 45.31716207 55093 Market Filled 2496658.41 2019-06-24T15:30:00Z TQQQ 63.66676589 -55093 Market Filled -3507593.133 2019-06-24T15:30:00Z TMF 24.64069751 71190 Market Filled 1754171.256 2019-06-24T15:30:00Z TYD 50.32595584 34820 Market Filled 1752349.782 2019-09-06T15:30:00Z TQQQ 64.62641568 65562 Market Filled 4237037.065 2019-09-06T15:30:00Z TMF 32.36969776 -71190 Market Filled -2304398.783 2019-09-06T15:30:00Z TYD 55.32687056 -34820 Market Filled -1926481.633 2019-09-11T15:30:00Z TQQQ 64.55644122 -65562 Market Filled -4232449.399 2019-09-11T15:30:00Z TMF 29.42790146 71810 Market Filled 2113217.604 2019-09-11T15:30:00Z TYD 53.32674448 39628 Market Filled 2113232.23 2019-11-01T15:30:00Z TQQQ 0 59469 Market Invalid 0 2019-11-01T15:30:00Z TMF 28.76884979 -71810 Market Filled -2065891.103 2019-11-01T15:30:00Z TYD 53.35052892 -39628 Market Filled -2114174.76 2019-11-01T15:30:00Z TQQQ 70.48427795 59269 Market Filled 4177532.67 2019-11-05T16:30:00Z TQQQ 72.61350093 -59269 Market Filled -4303729.587 2019-11-05T16:30:00Z TMF 26.83698518 80200 Market Filled 2152326.211 2019-11-05T16:30:00Z TYD 51.835342 41577 Market Filled 2155158.014 2019-12-06T16:30:00Z TQQQ 0 56469 Market Invalid 0 2019-12-06T16:30:00Z TMF 27.60375618 -80200 Market Filled -2213821.246 2019-12-06T16:30:00Z TYD 51.82537367 -41577 Market Filled -2154743.561 2019-12-06T16:30:00Z TQQQ 77.21182285 56515 Market Filled 4363626.168The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Tien Duy Vo
Peter Guenther : Thanks for the clarification. You are right. If I start the algo on 01/01/2008, I get the same result as you have posted. However, if I start the algo on 01/01/2018 then I get these results.
+2018-01-02 11:30:00TQQQBuy MarketFill: $48.15361309433875 USD
2071Filled +2018-01-02 11:30:00TMFBuy MarketFill: $20.750885826 USD
2404Filled +2018-01-02 11:30:00TYDBuy MarketFill: $42.892753618 USD
1158Filled +2018-01-05 11:30:00TMFSell MarketFill: $20.760609765 USD
-2404Filled +2018-01-05 11:30:00TYDSell MarketFill: $42.60804548 USD
-1158Filled-2018-02-02 11:30:00TQQQSell MarketFill: $55.87096473697939 USD
-2071FilledThe material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Nathan Swenson
Ok, I see that this strategy works much better with SPY derivatives rather that NQ. Just switching over to SPXL in tandem with TMF (no TYD) I get nearly 40,000% return:
https://www.quantconnect.com/terminal/processCache?request=embedded_backtest_3f192d90a6cb21b1968829b75efdb63f.htmlThe material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Nathan Swenson
Getting out of the Market early is more of a conservative move rather than aggressive such as going to war. I think the point of it is to take the least risk possible. The outer 1% of std deviation if a very high standard to meet, so I can understand why Peter made it that way. If you want multiple confirming signals, then you likely can't use 1% outliers.
The In and Out does very well with 3x leveraged funds because it is overly cautious, generally exiting the market too early, but safetly for the most part. So while you don't get all of the move, you could perhaps take greater risk for the shorter period you are in. The "jitter" from only 1 signal appears valid as the Out holding have done well, at least in the In sample data we've tested. That being said, it's difficult to watch this market zoom higher while sitting in Out holding since 10/6. In reality this is our first real "Out of Sample" data and it's not looking good so far but who knows what happens in the coming weeks. Everyone is predicting all time highs. We shall see.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Goldie Yalamanchi
Removing SHY from 2020 makes 2020 and possibly 2020+ trade normally and perform normally -- until such time as we can comment back in the SHY indicator.
If we are trying to "ace" the backtest then keeping SHY in always looks good until of course late 2020 when the algo stops trading in October.
But credit where credit is due... T Smith multiple signals (5 of 8) approach still did well with the Qual-Up universe approach from 2014-2018 as well. During those years by commenting out SHY in the original IN/OUT algo, the Qual-Up stocks didn't do well i.e. QQQ would have done well regardless during 2013-2018 because tech has been on a tear the whole past decard.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Vladimir
Here is updated DUAL MOMENTUM IN OUT v2.1
I have changed line 97 to:
prices = self.History(symbol, period + excl, Resolution.Daily).close
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EllaHamilton
Thx, nice one.
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Guy Fleury
@Vladimir, I go with Nathan's explanation. The strategy goes to the sideline at the first sign of trouble. You do not want to wait for a consensus since you are already dealing with ETFs.
Trading QQQ is like trading a market average surrogate. It holds the same shares as the NASDAQ 100 index as everyone knows. The top ten holdings (AAPL, MSFT, AMZN, TSLA, FB, GOOGL, GOOG, NVDA, PYPL, ADBE) account for 55% of QQQ. It should be view as one of the easiest stock selection you can make. Playing QQQ tends to dampen overall volatility. While using TQQQ puts volatility back into play and at a higher level with an expected beta of 3.0x. Therefore, you are playing QQQ on steroids which evidently brings in higher risk. The reason for “extreme” caution even if there is a cost to it.
This is not a game where we will fix things after we lose. So, we should first play safe whatever the performance level we are at. We might need to compromise like playing this strategy at a higher level but with other strategies in order to reduce overall volatility and drawdowns, or only use part of the available capital (say 10 to 20% as if on riskier assets).
In my previous post, the point was made that you could drop some of the signal components (3 out of 4) and it would increase overall performance. Well, here is another point of interest: self.INI_WAIT_DAYS. I see its use as a way to reduce whipsaws around the moving average crossovers. The original code has it at 15 trading days. No one questioned this as it was a reasonable assumption since there are indeed a lot of whipsaws near those crossovers. Removing it, for instance, making self.INI_WAIT_DAYS = 0, dropped performance considerably and thereby justified its use.
In my version of the program, if you set it to zero, you get a 62.68% CAGR. If you keep it at 15, you have a 97.84% CAGR. If you set it to 10, you get about the same result (97.82%). However, if you set it below 5, something like 2 or 1, you improve the picture considerably. The economic reasoning is simple. The wait days operate on a high decay function: e^(-0,5t). It might also suggest that whipsaws fade away rather fast near the crossovers. Also, by reducing the wait days, you are increasing the number of days the strategy is fully invested.
The table below shows the evolution of the strategy where only the wait days are changed from 15 to 0. I think that the chart speaks for itself. Changing a single number in the program can have a tremendous long-term impact. Note that this is close to a 6000% improvement going from zero wait days to one. Nothing else in the program was changed for these tests.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Vladimir
Guy Fleury,
Looks like I saw a spreadsheet like above two months ago.
The only difference was Quantopian instead of Quantconnect.
But that not optimized strategy had a completely different decision-making structure:
-Consensus of individual signals.
-Far less degree of freedom.
-Three times fewer sources of information.
-Three times fewer variables.
-Static parameters.
Something like the one below.
In terms of total return, it exceeds the latest In_out_flex_v5 2020-12-16
BTW: What will be your decisions?
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Frank Schikarski
Hi there,
some comments regarding the trigger for in or out:
if (extreme[self.SIGNALS + self.PAIR_LIST]).any():
What if we would (a) keep calculating daily returns for our signals, but (b) do this for every hour with a rolling 24-hours window? This should result in 24 times more observations = increase our resolution, allowing to optimize the 1%, the lookback period and increase the "any" until we get some redundancy from our scouts. Keep exploring ;)...
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Vladimir
Here is the updated DUAL MOMENTUM IN OUT v2.2
-Based on In_out_flex_v5_try.
-Used exponential like smoothing on line 116-121
-Line 120 is commented out.
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Guy Fleury
@Vladimir, yes, as you say: "...the strategy had a completely different decision-making structure". You improved on that strategy design since... thanks.
Changing the number of wait days (self.INI_WAIT_DAYS) in the program is more like an administrative decision. The idea is not bad since we know there will be some whipsaws at crossover times. However, there was no need to wait more than one day or maybe two at the most.
It is not that surprising an observation. We want security, be decisive, and not be clobbered by added trading costs due to whipsaw after whipsaw for days after an exit, and yet, this says do wait but at most one day and probably no more.
Such a small decision with such an impact. You change a single number in the program from 0 to 1 and it increases performance by 5910%!
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BukavuTrader
@Vladimir, Do you have one like that for FOREX?
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Vladimir
BukavuTrader,
Do you have one like that for FOREX?
Not yet, but you can try yourself.
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Guy Fleury
Some added notes. This trading strategy has shown that it could go quite far depending on some of its parameter settings, ETF selection, trading logic, and initial capital. Using 10k, 100k or 1 million is an administrative decision. The program will do its job either way since it is scalable (but up to a limit). It is a simple bond switcher based on QQQ, but it has interesting properties.
The max drawdown and overall volatility will be the same with either capital options. All you will be changing is the ongoing bet size. This will barely change the price at which a trade is executed. But will change the traded quantity. Increasing the capital ten-fold will increase the bet size 10-fold, and in turn, increase profits (losses) 10-fold. However, going for 10 million as initial capital will tend to make the strategy unfeasible since you might end up trading 175,000,000 shares of TQQQ on practically a weekly basis which is more than the average daily volume. So, there are practical limits to the strategy which will need to be addressed.
With 100k you can push the strategy beyond 1 B and with 1 M you can pass the 10 B mark. Almost incredible. However, this is achieved by taking on more risk, using 3x-leveraged ETFs which are also leveraged at 1.4x. Thereby pushing on the machine way beyond what the original design was. Of note, changing the wait days (self.INI_WAIT_DAYS) to 1 had a tremendous impact on overall performance, a real game-changer, and yet, just another administrative decision.
I have not touched risk reduction procedures yet. This comes at a later stage in my testing process. It is expected that by installing protective measures the overall performance will be reduced to some extent. But, I will know that after those measures are added. Meanwhile, I have other tests to make.
My version of this program is dealing with a 3.x leveraged QQQ surrogate (TQQQ). It is playing an index tracker but with 3.x the average market beta saying it swings more than QQQ which is itself an average market consensus equivalent.
In pushing further, the strategy reaches a performance plateau from which it starts breaking down. It does not blow up mind you. It simply trades less and less and thereby generates less and less suggesting not to go that far. But that should be expected. Knowing that the strategy has seen its own built-in structural limits, it is almost time to apply protective measures and scale it down to a more acceptable risk/reward level.
Here is my take. You PLAY the game for its long-term CAGR potential. Which trading methods will give you the highest return within your own trading constraints? Not somebody else's, but your own. We need to answer the question: will we accept 5% more on a temporary max drawdown for 5% more in CAGR? The decision has value and is based on the initial stake:
10k ∙ (1+0.30)^20 - 10k ∙ (1+0.25)^20 = 1,033,135
100k ∙ (1+0.30)^20 - 100k ∙ (1+0.25)^20 = 10,331,346
1M ∙ (1+0.30)^20 - 1M ∙ (1+0.25)^20 = 103,313,464
This should weigh in the evaluation of your acceptable risk/reward scenario. It can be a costly decision.
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Vladimir
Here is the updated DUAL MOMENTUM IN OUT v2.3
Based on In_out_flex_v5_disambiguate_v2.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Simone Pantaleoni
Great idea Vladimir! I was working on a similar update on the INOUT algo, but you anticipated me! :P
Have you also tried to decrease further the "decay" value for the SELF.WAIT_DAYS variable, reducing the waiting to increase sharpe and return? (guess probably yes, isn't it?)
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Carsten
Vladimir as you requested.. :) was a bit trick, just happy to get it as a multi AlphaModel running. Its a super simplified version, but you can easily upgrade it. At the end it has much more lines than the normal version. It was quite trick to get the signal into the two AlphaModels. At the end I used ObjectStore. If someone has a simpler solution, with a global variable? please comment.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Guy Fleury
@Vladimir, I like the behavior and equity line of version 2.3. Remarkable, and great numbers. I will try to find some time to look at it since I think there are things I will learn in the process. Thanks for sharing.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Damiano Bolzoni
Guys, I really fell in love with this strategy (I actually started following the thread on Quantopian) and so ran some additional backtests taking into consideration several 5-year periods.
The strategy really shines during the 2008-2012 timeframe and then again in 2020. That's how it delivers 30% annual return. Take any other period of time and it will barely matches the returns of holding QQQ: I literally just finished a backtest between 1-1-2013 and 12-31-2019 and it's underperforming by nearly 10% overall.
If one substites QQQ and FDN with SP500 equivalents the same behavior can be observed, actually returns are even worse.
Am I the only one experiecing this?
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Simone Pantaleoni
Just tweeking the Waiting variable using a bigger decay, as suggested above to get slightly better returns and sharpe :)
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Carsten
Vladimir could you plese check again, should work now, the objektstore object was not created in the initialize, but it was yesterday on my disk as i was finding out how to impement it....
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Jack Pizza
FYI to make this more robust these same arguments were brought up in the old QT thread.
Not sure if this is implemented in this or not.
There should be a 3rd option or ultimate out where it just goes into cash or adding gold as a 3rd / 4th asset to rotate into.
Given at some point in time stocks and bonds might breakdown together.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
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