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Systematic Trading updates include open positions, new signals, and the performance of six trading strategies in the weekly timeframe. Market Signals or All in One subscription are required to access the report.
For more information on the strategies, see here.
Stocks (SPY) fell 2.7%. Commodities (DBC) lost 3.4%. Gold (GLD) was down 2%. Bonds (TLT) shed 0.6%. Year-to-date, DBC is up 30.7% and GLD is up 5.5%. TLT is down the most, with a loss of 18.7%.
The six strategies’ average weekly change was -1.1%. The strategies’ average year-to-date return is -2.3%. The average return of strategies excluding long/short is -2.8%, while the S&P 500 index is down 10%. The 60/40 portfolio (SPY/TLT) is down 13.5% year-to-date.
Comments about performance, positions, and the new signals report follow below.
The Dow 30 long/short strategy hasn’t been active since March 7, when the positions were closed at the open due to the activation of an optional volatility switch. Despite the high volatility, since March 7, the strategy has gained about 4.2%, and the average performance of the six strategies is about -1.6% after we include its performance. This week, the long/short strategy gained about 2% due to a long position in IBM and a short position in VZ. This could have been the result of luck, and the volatility switch offers some protection during choppy markets.
All strategies had losses due to the broad market selling, especially on the last two days of the week. Three strategies are out of the market.
The allocation to equities remains about 17% due to a long position in the SPY ETF. About 14% is invested in gold (GLD and IAU) and 5.5% in commodities (DBC). The total allocation to strategies is about 36%, while 64% remains in cash.
Three weeks ago, I wrote:
[I]t‘s not clear whether the downtrend in stocks and bonds has ended. Trends are only known in hindsight.
The sell-off may accelerate next week if there is no good news the market can perceive as an excuse to rally. All markets are under pressure because when interest rates and inflation rise, there is capital destruction. No one knows when this will stop. We hope the strategies will limit losses and provide better risk-adjusted returns. Few are talking about alpha at this point because it comes with high risks. Realizing alpha requires focusing on specific strategies, and there is always the risk of a violent drawdown. Some people brag about their gains, but rarely mention their losses and the net result. Trading and investing are hard, especially during high inflation and rising interest rate periods.
Strategy positions and performance as of the close of Thursday, April 22, 2022.
|Strategy||Position||Ticker||YTD (change for week)**|
|ETFNRW||Long||DBC, IAU||+5.9% (-2.2%)|
|KO, IBM, MCD
GS, VZ, JNJ
* Performance calculations take into account a stop-loss of 10% for each position.
** Calculations for ETF4RW, and ETFNRW are from the open of the year. For adjustments from previous year’s close use the following: ETF4RW: – 0.5%, ETFNRW: -0.4%.
*** DOWWN volatility switch was triggered. See note below. Positions are for strategy without the switch.
Signals summary for next week
All new signals are for the open of 04/25/2022
|Strategy||New Signals||Position size*|
See note below
|SELL: KO, IBM
COVER: VZ, JNJ
BUY: AXP, VZ
SHORT: AAPL, INTC
|MRDOWW||SELL: No action
BUY: No action
*The position size applies to each signal/security based on the capital allocated to each strategy and may change depending on market conditions. For example, in the case of the MRDOWW strategy, each new position is sized based on 1/6 of available equity at the time the signal is generated. For ETF4RW, each position is sized based on 1/2 of available equity.
** A 10% stop-loss is applied to each signal.
*** A 10% stop-loss is applied to each signal. The stop-loss is optional and does not affect much longer-term performance. Applying the stop-loss is recommended especially during high volatility periods.
i Position size may vary depending on market conditions.
Note: The DOWWN strategy volatility switch was triggered after the close of March 4, 2022. This means open positions were closed on March 7, 2022, and there won’t be any new positions until volatility decreases. However, we list the new positions without the volatility switch for those who are interested in these signals.
See details below.
- The Weekly Signals are updated during the weekend and before the market open of the following week. For more details and past performance click here.
- It is not required to follow all strategies. For example, someone may be interested only in ETF rotation strategies and someone else in mean-reversion strategies. Other may only be interested in the Dow long/short strategy.
- The first time to consider the signals, the Sell and Cover signals are ignored because there are no open positions. Only new Buy and/or Short are taken into account. In the case of open positions, those may be considered depending on strategy nature. For example, since trend-following and rotational strategies can stay in positions for longer periods, their open positions may be considered. For shorter-term strategies, such as long/short or mean-reversion, this is not done usually.
- Relative performance of signals depends on the date of the first Buy and/or Short signal. There is no robust way of choosing when to first consider signals. Usually, some traders wait for a drawdown before considering signals of a strategy but this is risky as good performance may persist for much longer. In the longer term, the entry point is not important but in the short-term performance, variations can be large due to the timing of entry.
- About conflicting signals: Suppose one follows the long-only trend-following strategy in SPY and the mean-reversion strategy in SPY only and the former strategy generates a buy signal while the latter is a sell signal, both for the open of next week. These signals theoretically translate to no action. However, doing nothing assumes equal allocation to both strategies and the same equity levels. If the allocations and/or the equity levels are not the same as is usually the case, net exposure must be increased or decreased accordingly after calculating the number of shares to buy and subtracting the number of shares to sell. For example, if one strategy must go long 100 SPY shares but the other must sell 120 shares, then 20 SPY shares must be sold. Things become a bit more involved in the case of allocations depending on volatility or some other metric. In general, trading a group of strategies that generate signals for the same securities requires doing some extra work on risk and money management. Reducing or increasing positions may be required when there are signals in the same securities.
- YTD performance results are based on backtests and include $0.01 commission per share.
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