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Weekly Signals Update – November 15, 2021 [Premium Signals]

The weekly systematic trading reports include open positions, new signals and year-to-date performance of seven trading strategies. Access to report requires Market Signals or All in One subscription. 

Market Recap and Comments

Stocks (VTI) finished the week down 0.3%. Commodities (DBC) gained 0.7% but finished the week off their highs. Gold (GLD) was boosted by inflation fears and ended the week up 2.7%. Bonds (TLT) fell 1.3% despite a good start. DBC is up the most (+45.1%) year-to-date while TLT is down the most (-5.4%.)

Below is the average performance (equal allocation) since 2007 of the five strategies currently active. DOWWN long/short is not included because it’s a hedge and the features calculated by machine learning (DLPAL LS) start in 2017. Click on chart to enlarge.

Comparison of combined strategy performance to SPY ETF performance.

Strategy Buy and hold
Annualized return 9% 10.5%
Maximum Drawdown -7.3% -55.2%
Volatility 7.7% 20.2%
Sharpe ratio 1.17 0.52
MAR ratio (CAGR/MDD) 1.24 0.17

Due to the low volatility resulting from using an ensemble of strategies with diversification, “leveraged alpha” is possible while keeping low maximum drawdown. Note that the Sharpe ratio stays nearly constant under leverage. For more information click here. To subscribe to the weekly signals of strategies above click here.

Last week I wrote:

The market doesn’t like participants who try to outsmart price action with discretionary or naïve systematic strategies that chase high growth or meme stocks with annualized volatility in excess of 50%.

A 33% plunge in MRNA in the last two week and a 15.4% drop in TSLA this week, are a reminder that chasing high momentum and meme stocks comes at high risks. Exiting with profits is orders of magnitude harder than timing of positions. Many momentum strategies are good in finding entry signals but quite bad in identifying exit signals.

On the other hand, the patient trader who aims at 8% – 10% annualized return with low volatility in traditional markets with sufficient diversification often enjoys steady wealth generation. At times, it may get frustrating but it pays in the long term. The excitement of following meme and high momentum names often ends with large losses unless the trader is experienced and uses sound risk management and timing algorithms not usually found in popular newsletters and naïve signal generation services. Although all strategies are at risk of losing money, selecting the ones that have high tail risk is a sign of lack of experience and reckless speculation.

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