K, I think I just figured out how to get almost GUARANTEED edge...

[Scataphagos]

What happens is it is Oct of 1928? And there is no rebound. Those buying on margin are bankrupt. Keep buying puts with high prems. So you might lose 80-90% value of your SPY, 100% invested, might have to hold it 20 years till price comes back up, wasn't till after World War 2 ended, stock market went back up. If the Dems win, market lose, after awhile don't matter who wins when prepared.

Players get enamored with "several years" market performance in their comparos and imagined strategies.

Doubt they are taking into account that this time has been unlike any other. That is, the markets have rallied on interest rates falling for DECADES from ~20% to negative in some places... AND the central banks have pumped $TRILLIONS into the markets. This scenario had never occurred before and will never again. Many/most(?) people have never experienced anything other than "the wind at your back". There will be some sort of reversion at some point... which may be cataclysmic or last 20 years. B&H won't fare well then. When that occurs and if you have a call on luck, that would be the time to use it.

 

[dozu888]

well - op is really talking about 2 things that are not necessarily related... 1 is buy n hold; the other is buy on a pattern like 3-down.

this is essentially what I do.... have a baseline I am 95% in equities long haul, and have some cash/margin available to play short term patterns.

 

[destriero]

Salty, you didn’t think this through. The SPX Jan 2021 2300P are $28 at 25% vol. You’re going with 3% sunk cost in portfolio protection? 30% OTM? At skew that is 2x ATM vol?

 

[ET180]

AND the central banks have pumped $TRILLIONS into the markets. This scenario had never occurred before and will never again.

I agree with your points, but maybe it is possible for the central banks to continue doing what they did over the past decade for another decade or so. I say that with a high amount of skepticism, but so far it seems like they are able to keep throwing more liquidity into the market without consequence (aside from malinvestment and widening the wealth gap). Which has led some people to take the concept of MMT seriously (at that extreme, I don't think it would work). But who's to say the Fed can't just keep doubling their balance sheet every decade. US still pays decently positive rates on treasuries. Dollar still strong. I guess it will work until it doesn't.

All that aside, we are currently sitting above 25 P/E on the S&P with the backdrop of 3 consecutive quarters of declining earnings and lowered future earnings estimates. There's a lot of optimism priced into the market. Will be interesting to see what happens with the repo markets over next few months.

The correlation between weekly S&P returns and fed balance sheet mentioned at the end of this article is very interesting:

https://www.zerohedge.com/markets/us-equity-markets-just-reached-record-euphoria

 

[DevBru]

A good trading edge will always beat buy and hold.

My strategy Q4 2019 has made me 12,5% profit so far with a win rate of just 47%. However this isn't much compared to the rest of the year and last year Q4 2018 made me close to 96% profit with a win rate of 67%.

All with just 0,5% risk on balance per trade, 1-2 trades per day and it also works in a bull market, october and december 2018 where my best months so far.

No hard work and there is not one buy and hold strategy that can do the same.

 

[ironchef]

A good trading edge will always beat buy and hold.

My strategy Q4 2019 has made me 12,5% profit so far with a win rate of just 47%. However this isn't much compared to the rest of the year and last year Q4 2018 made me close to 96% profit with a win rate of 67%.

All with just 0,5% risk on balance per trade, 1-2 trades per day and it also works in a bull market, october and december 2018 where my best months so far.

No hard work and there is not one buy and hold strategy that can do the same.

Wow, results we newbie can only dream about!

This is a relevant question for you then:

https://www.elitetrader.com/et/thre...-you-do-when-you-are-too-old-to-trade.338723/

 

[gaussian]

A good trading edge will always beat buy and hold.

This is actually provably false. You're defining a trading strategy as anything in the set of strategies that are not buy and hold. Let's define buy and hold as "any strategy which upon purchase of a security or set of securities holds for between one month and the heat death of the universe". We need this definition to clearly separate it from swing trading.

Then the universe of buy and hold strategies includes spread trading, quarterly options, LEAPS, ETFs, mutual funds, various arbitrages, and single stock strategies.

In 2017 roughly 1 in 20 hedge fund managers beat index funds just to give you an idea of how poor performance is coming from the leading experts in trading actively.

You're claiming any strategy that does not fit into the universe of buy and hold will always beat it? Based on the way we've defined that you're claiming short term swing trading and day trading will beat buy and hold? Doubtful at best. The universe of buy and hold strategies is so large compared to simple day trading and swing trading (which also get screwed by short term capital gains except in the case of futures) that unless the strategy is exceptional there is little doubt in my mind a trader would've been better off just placing their money in a buy and hold strategy and calling it a day. Just to give an example, the 10 year sharpe ratio of VYM is 1.135 with an average 10 year return of around 12%. This is a hard sharpe-to-return-ratio to beat. If we define beat as the optimal point on a graph of risk metrics and return you could find TONS of buy and hold strategies that beat more active investment - especially in this 10 year bull market.

No hard work and there is not one buy and hold strategy that can do the same.

Win rate isn't an actual metric. Post your sharpe and VaR. I suspect you're quoting return on margin rather than return on total capital (a very common thing for strategy promoters).

 

[ironchef]

Salty, you didn’t think this through. The SPX Jan 2021 2300P are $28 at 25% vol. You’re going with 3% sunk cost in portfolio protection? 30% OTM? At skew that is 2x ATM vol?

I don't think @Saltynuts knows how to compute that? I don't.

What happens is it is Oct of 1928? And there is no rebound. Those buying on margin are bankrupt. Keep buying puts with high prems. So you might lose 80-90% value of your SPY, 100% invested, might have to hold it 20 years till price comes back up, wasn't till after World War 2 ended, stock market went back up. If the Dems win, market lose, after awhile don't matter who wins when prepared.

@Saltynuts' strategy is similar to: Dancing options around your holding, a strategy you posted a few years back.

 

[Arnie]

IMO, what the OP is about is the edge in time. Even when I daytraded (years ago), they encouraged us to always be long with a portion of the account. Why not? Historically it's returned about 9-11%
I've encouraged all of my nieces and nephews to $ cost avg into a blue chip fund with the bulk of their funds.
A blue chip fund is always weeding out the laggards and adding the new winners. You buy some at lows and you buy some at highs.
There may come a day when it doesn't work, but for the vast majority it beats trying to daytrade the markets with an underfunded account based on a squiggly line on a chart and then one day in your 50's you realize what a waste it was and the edge you had (Time) is gone, forever.

 

[DevBru]

This is actually provably false. You're defining a trading strategy as anything in the set of strategies that are not buy and hold. Let's define buy and hold as "any strategy which upon purchase of a security or set of securities holds for between one month and the heat death of the universe". We need this definition to clearly separate it from swing trading.

Then the universe of buy and hold strategies includes spread trading, quarterly options, LEAPS, ETFs, mutual funds, various arbitrages, and single stock strategies.

In 2017 roughly 1 in 20 hedge fund managers beat index funds just to give you an idea of how poor performance is coming from the leading experts in trading actively.

You're claiming any strategy that does not fit into the universe of buy and hold will always beat it? Based on the way we've defined that you're claiming short term swing trading and day trading will beat buy and hold? Doubtful at best. The universe of buy and hold strategies is so large compared to simple day trading and swing trading (which also get screwed by short term capital gains except in the case of futures) that unless the strategy is exceptional there is little doubt in my mind a trader would've been better off just placing their money in a buy and hold strategy and calling it a day. Just to give an example, the 10 year sharpe ratio of VYM is 1.135 with an average 10 year return of around 12%. This is a hard sharpe-to-return-ratio to beat. If we define beat as the optimal point on a graph of risk metrics and return you could find TONS of buy and hold strategies that beat more active investment - especially in this 10 year bull market.



Win rate isn't an actual metric. Post your sharpe and VaR. I suspect you're quoting return on margin rather than return on total capital (a very common thing for strategy promoters).

You clearly missed the second word in my post and you are misquoting me, i never said ANY system will beat buy and hold.

The return is return on account balance, not margin ... I am not selling or promoting anything.

To be honest i have no idea what my Sharpe or VaR is, i don't use a fancy analytic software, just a simple excel spreadsheet, i should look in to it.

I know my expectancy is 0,6 and the average risk to reward is 1:1,7. My largest DD is 3% and i never risk more than 0,5% of the account balance per trade. These are basically the only numbers i am currently tracking. I feel expectancy is more important than Sharpe ratio since trading systems will have more volatility in the return numbers than an index, more volatility in the returns means a lower Sharpe ratio, however that doesn't have to be a bad thing.

If you compare my results from Q4 2018 with the results from Q4 2019 you will see what i mean. I had very high returns in Q4 2018 and in comparison very low returns in Q4 2019 which will decrease my Sharpe ratio drastically, however like i have said that doesn't have to be a bad thing. My system just peaks in reversal conditions like Q4 2018 had and Q4 2019 has been almost straight up meaning my win rate and return goes down and with those the Sharpe ratio goes down since the return percentages aren't consistent enough.

So my system does work in very long bull markets, but it hugely outperforms in reversal conditions which also means a huge difference in the return for some months. Something the Sharpe ratio calculation doesn't appreciate.


Ps. Yahoo shows a 1,07 sharpe for VYM, not that it makes a huge difference .