Combining Money Management, Portfolio Metrics, and Strategies for - - PowerPoint PPT Presentation
Combining Money Management, Portfolio Metrics, and Strategies for Investing and Trading Discussed by: Paul Grems Duncan Leader, Tri-State Investors Group July 16, 2001 1 Todays Topics Metrics a few that will help your
Discussed by: Paul Grems Duncan Leader, Tri-State Investors Group July 16, 2001
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What is Drawdown (DD)? Drawdown is the measurement from the maximum
Perceived Drawdown is:
There IS a distinction between intra-trade DD and end-
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What is the Calmar Ratio? CR is a very simple metric that relates
return to drawdown.
Easy to remember: If CR < 0, your CAR is negative, and you’re losing money. This is a
bad system.
If CR ~ 1, Reward to Risk is 1:1. In general, you lose a dollar for
every dollar gained, but time frame is important.
If CR = 2, for every dollar lost, you gain 2 dollars. Good system. If CR = 3, for every dollar lost, you gain 3 dollars. Great system! Practical, winning systems generally have a CR > 1.50
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AAII Accelerated EPS Strategy (Modified Shadow Stock Portfolio Criteria)
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AAII Accelerated EPS Strategy (Modified Shadow Stock Portfolio Criteria)
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We’ll discuss how to use CR and timers to improve a strategy later in the presentation
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A strategy has demonstrated a record of only 20%
The average profit per trade is $10K The average loss per trade is $2K Is this a winning strategy?
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In the long run, this example should be
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Here’s how PRR is defined:
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Per Vince: PRR > 2.0 are good systems. PRR > 2.5 are excellent
systems.
Also per Vince: We need at least 24-28 trades in a system to know
whether it’s a viable system
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Standard AAII portfolio: http://www.aaii.com/model-
Focuses on Small Cap stocks between $17 and $200M in size Performance over last year has been quite good, but
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The assumption here is that the modeled
The drawdown of 49% would most likely have
The average CR of 3.50 is very, very good, but, the
How to stabilize CR by reducing MDD?
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Chart is the RATIO of Russell 1000 (Large Caps) to Russell 2000 (Small Caps) – R2K is in the Denominator
Favor Small Caps 1/03 – 9/08 Favor Small Caps 6/08 – 9/08 4/09 - Present Favor Large Caps 6/06 – 5/08 10/08 – 3/09
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It’s possible to use CR (as well as other metrics) to
The AAII MSSP strategy is a good strategy, but
The general trend of favoring large caps or small
Right now it appears that small caps are just coming
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What is Mean Reversion? Mean reversion is when a stock or ETF gets
Markets generally are in a trend or are mean-
Larry Connors and Cesar Alvarez have developed a
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Connors calls it “TPS” for Time-Price-Scale In This is an aggressive strategy Focused on ETFs You “scale-in” to a position as the price drops on
Connors’ has conducted much of his work using 20,
What are the specific rules of this strategy?
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1) ETF is above the 200d MA 2) RSI(2) is below 25 for two days in a row. Buy 10% at the
3) If prices are lower on the close than your previous entry, buy
4) Repeat #3 until you attain 40% Exit on the close when the 2-period RSI closes above 70 A PDF copy of Connor’s book has been uploaded into the
How has the strategy performed?
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20 ETF Inception to 12/31/08
1159 Trades Average % P/L = 1.45% Average Holding Time = 6d % Number Winners = 89%
20 ETF from 1/1/09 to 7/15/11
405 Trades Average % P/L = 1.67% Average Holding Time = 5d % Number Winners = 93% ME: 0.203
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20 ETF Inception to 12/31/08
648 Trades Average % P/L = 1.97% Average Holding Time = 6d % Number Winners = 81%
20 ETF from 1/1/09 to 7/15/11
59 Trades Average % P/L = 1.39% Average Holding Time = 6d % Number Winners = 75% ME: 0.163
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1x 20 Long ETF 1/1/09 to 7/15/11
405 Trades Average % P/L = 1.67% Average Holding Time = 5d % Number Winners = 93% ME: 0.203
3x ETF from 1/1/09 to 7/15/11
163 Trades Average % P/L = 4.33% Average Holding Time = 5d % Number Winners = 89% ME: 0.492
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1x 20 Short ETF 1/1/09 to 7/15/11
59 Trades Average % P/L = 1.39% Average Holding Time = 6d % Number Winners = 75% ME: 0.163
70 Trades Average % P/L = 1.53% Average Holding Time = 8d % Number Winners = 74% ME: 0.091
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Pascal Willain and Billy O’Nair have created two very focused,
mechanical trading systems that are available at the Effective Volume web site which are profitable.
The first system, which uses IWM and related ETFs, is based upon the
20d Money Flow, established using Pascal’s Effective Volume tools, as well as precise entries/exits using pivot levels, statistics, and risk/reward ratios. This is a combination mean-reversion and trend- following system.
The second system, which uses GDX, is based upon money flow,
looking specifically for extremes, then fades these situations. This is a mean reversion system.
These two instruments were chosen because they are not highly
correlated.
Detailed FAQs can be found on the Effective Volume site, under the
heading “Robots”. You must be a registered member to view.
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Just started getting
15 total trades, 10
ME: 4.58 PRR: 1.08 (but
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Effective Volume, developed by Pascal Willain, separates
price must move up if the bid is unsatisfied, else the price must drop if the ask is unsatisfied
and selling of an equity. Typically, small selling does not move the price a significant amount over extended periods of time.
EV money flow, which is determined by buying/selling of
Let’s say that I have a stock candidate. Since 30% of
There is a movie posted EV site that I created and which
GGT (Paul’s system) and EV work together nicely to
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These are favorable EV stocks for Monday
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Notice how Total EV is converging on trendline… stock is being accumulated Group just issued a “buy” signal because large player strength has jumped above 0%
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Upward trending average line shows constant accumulation Group recently signaled a “buy” but has dropped back below 0 and the trend line. CL is a “wait”
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Weaker TEV trend line but the fact that TEV has crossed above is very positive Group recently signaled a “buy” and trendline is just crossing 0 from below – very bullish for group.
We covered three relevant metrics to assist you with your portfolio:
We looked at the AAII MSSP performance, and then suggested a
method to improve drawdown which will help CR in the long run. The method is not related to the strategy at all (What was it? Hint: Russell 1K vs. Russell 2K)
We looked at Connor’s TPS Mean Reversion Strategy and found a
strategy that slowly, but with a positive edge, generates profits. We concluded that the 3x leveraged ETFs have a better edge and better gain than their 1x counterparts.
We looked at two mechanical strategies that have phenomenal
backtesting performance and the initial forward test is going very well.
We looked briefly at how I evaluate GGT + EV stocks, specifically
using the EV web site after I have candidates.
There are files to download at the Effective Volume site. You must
register to view these files; directions follow on the remaining slides.
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If you are interested in becoming a member at the
Go to http://www.effectivevolume.eu/EV_Subscribe_Special.html
Further, if you’re interested in the IWM and GDX
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In the Registration Question Please state “Registering per Paul Duncan / AAII Wash DC Meeting”
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Step 2: When you receive an email confirming
Step 3: After you receive the previous screen,
IF you specified that you were from the AAII Wash
1) Log In to http://forums.effectivevolume.com 2) (next slide)
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See if this says “Leave Group” or “Join Group” Feel free to join the other groups – it is free.
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This thread “Links” contains the links to the files; They are at the BOTTOM of the thread.
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The Excel files will be located under this header Note: this is message 1 of the thread – it is at the BOTTOM of all the messages
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