| StockFetcher Forums · General Discussion · The 36% Solution | << 1 2 >>Post Follow-up |
| davesaint86 725 posts msg #140972 - Ignore davesaint86 modified |
1/14/2018 10:26:33 AM https://www.amazon.com/12-Solution-Average-Beating-Managers/dp/197468136X/ref=sr_1_2?ie=UTF8&qid=1515941376&sr=8-2&keywords=the+12+solution https://seekingalpha.com/article/3962323-survive-90-percent-market-drop-stocks-bonds-pt-2 I recently bought a book called The 12% Solution by David Alan Carter. I bought the book because I was interested in the relative strength aspect of the book and hedging risk. The book is 71 pages long and is an easy read. The 12% Solution is a monthly strategy. The concept of the 12% solution is on the hedge side you have JNK and TLT. The hedge side is weighed at 40%. The hedge (pick top one of the two) is selected based on the 3 month relative strength lookback period. The 60% selection is also based on the strongest 3 month relative strength candidate in your list. If all candidates in your list on 60% side are weaker then cash you stay in cash. For the 60% side David Alan Carter listed SPY, MDY, IWM, and QQQ. My backtesting results using ETFReplay show a CAGR of 14.3% going back to the beginning of 2008. My 12% solution list on the 60% side includes, MDY, QQQ, RPG, RPV and VEA. The 40% side includes JNK and TLT. My backstesting results with this approach show a CAGR of 18.1% going back to the beginning of 2008. If you add the 4 month MA on the 60% side the CAGR improves to 19.2% with a 12% DD. I wanted to see if I could create a 3X version (a 36% Solution). My 40% hedge side includes TMF and EEV. Why EEV? Read the Seekingalpha article. My 60% side includes MIDU, TQQQ, UPRO and ZIV. I was only able to test back to 2011. The CAGR returned was 40.8% with a -20.4% DD. The worst monthly lost was -9.5%. The total return show 1005%. 2015 was a bad year for stocks. This strategy shows a return of 36.6% in 2015. This is where having EEV on the hedge side helped. |
| novacane32000 331 posts msg #141009 - Ignore novacane32000 |
1/15/2018 2:16:30 PM This is great ! Thanks |
| shillllihs 6,047 posts msg #141011 - Ignore shillllihs |
1/15/2018 2:57:21 PM Dave can you summarize precisely what you mean. With the most aggressive system, are you holding the hedge indefinitely? You are not looking to play this exclusively correct. I'm at my kids baseball academy so just scanned this. |
| davesaint86 725 posts msg #141012 - Ignore davesaint86 modified |
1/15/2018 3:23:28 PM Shills - The author in his 1X system shows to either hold TLT or JNK no matter what the relative strength. My testing using ETFReplay for the 3X shows by buying the top ETF on the 60% side based on the 3-Month RS as long it's performing better than cash and either buying TMF or EEV based on the strongest 3Month RS on the 40% hedge side, that since the beginning of 2011 the strategy returns an average of 40% per year. I've seen TMF drop like a falling knife starting at the end of July, 2016. I would get out using my SF filter. Currently, the daily and weekly filters that I posted show TMF as a short. Why take the lost if you don't have to. Below shows the strategy yearly returns vs UPRO which I used as the benchmark for my backtest. 2015 was a crappy year for stocks. It looks like the hedge worked in 2015. In most uptrend years using the hedge will lower your overall returns. ETFReplay is showing the strategy returned 1005% vs 831.8% for UPRO since 2011. The draw down for the strategy shows -20.4 vs -51.7 for UPRO. Volatility for the strategy shows 21.4 for the Strategy vs. 42.4 for UPRO. Currently the strategy would have you in TQQQ at 60% and TMF at 40% as of January 1st and the return so far for the year is 8.10% Year Strategy Return UPRO Return Max DD UPRO Max DD 2011 37.70% -11.90% -12.00% -51.70% 2012 39.60% 46.80% -9.40% -27.30% 2013 45.30% 118.50% -9.80% -16.60% 2014 58.60% 38.00% -10.20% -21.00% 2015 36.60% -5.20% -15.30% -33.40% 2016 22.80% 30.80% -13.90% -29.00% 2017 37.60% 71.40% -10.90% -7.90% 2018 8.10% So to answer your question, you can play the strategy like the author intended and still make decent results and have a hedge. I would play the strategy using my charts. I would be in TQQQ 60% and in cash 40% since TMF shows no buy signal on my daily or weekly charts. With that said lets go back in time a month or so ago with that dimwit from ABC news put out the fake news and caused the market to temporarily tank. TMF flew up over 6% while ETFs like UPRO were tanking. This day the hedge would have worked whether TMF was a buy or not. Imagine if North Korea really did attack Hawaii on Saturday. The market would tank tomorrow while Gold and TMF would go way up. |
| dtatu 143 posts msg #141061 - Ignore dtatu |
1/16/2018 11:34:49 PM davesaint, I try to reproduce on ETF Replay Carter system and do not get similar results. Q: You used "Advanced Relative strengh Backtest? If Yes: I made a porfolio 1: Spy, MDY,QQQ,IWM with a weight of 60% and Portfolio 2:JNK,TLT with weight 40%, with the cash filter ON- what parameters you chose for: Return A, Return B and Volatility( on the right side)? *I usually check "Invest on first day of next period" as , if not checked, is not very realistic, as ETF replay quotes are updated only after the Close, and this check usually diminishes the returns. Thanks for your help Dan |
| davesaint86 725 posts msg #141068 - Ignore davesaint86 |
1/17/2018 8:24:52 AM Dan - Yes - Advance Relative Strength. Your parameters are correct. I have both Portfolios A&B Return A set to 3-Month 100%. I do not check "Invest on first day of next period." I just ran a test using RPV, RPG, QQQ, MDY & VEA. With the box checked I show 16% per year with the Cash option enabled. I show 17.2 with the 4 month Moving average. Unchecked on show 19.2% per year with 4 month moving average and 18.1 with the cash option on. The tests still show checked or uncheck over 12% per year. From what I remember my results returned 14.3 unchecked using Carter's ETFs. Just ran the test with his ETFs. I"m should 13.5 with the box unchecked. You can add IEF as Cash to boost the returns. Towards the end of the month you can look at next months provisional picks and move into any new picks at the end of the month instead of after the first of the month. I think some months you will gain more and some less. davesaint, I try to reproduce on ETF Replay Carter system and do not get similar results. Q: You used "Advanced Relative strengh Backtest? If Yes: I made a porfolio 1: Spy, MDY,QQQ,IWM with a weight of 60% and Portfolio 2:JNK,TLT with weight 40%, with the cash filter ON- what parameters you chose for: Return A, Return B and Volatility( on the right side)? *I usually check "Invest on first day of next period" as , if not checked, is not very realistic, as ETF replay quotes are updated only after the Close, and this check usually diminishes the returns. Thanks for your help Dan |
| davesaint86 725 posts msg #141069 - Ignore davesaint86 modified |
1/17/2018 8:33:52 AM Dan - here is a possible way to play the strategy that might boost returns and lower risk. Use the DMA8 column to buy and sell (a 1 is a buy). Maybe on the 60% side you have rpv, rpg, qqq, mdy, and vea. On the hedge side you have tlt, jnk and gold. For cash, either SHY or IEF. Using the filter you it could be possible for example to buy and sell qqq twice within the same month based on the filter. Currently, RPV would be the pick on the 60% side and GLD on the 40% side. TLT, JNK, SHY, IEF are showing 0 in the DMA8 column. |
| dtatu 143 posts msg #141071 - Ignore dtatu |
1/17/2018 8:47:55 AM Thanks a lot! Q: So, if you have mutiple buy signals on the column dma8, you pick the one with the strongest return in the column 3mth%? |
| graftonian 1,089 posts msg #141072 - Ignore graftonian |
1/17/2018 9:05:24 AM @Dave, Read the book, like the system. I have always been a fan of 3X etfs, and it seems as tho they should work here. What about JNUG on the 40% side? Duane |
| davesaint86 725 posts msg #141073 - Ignore davesaint86 modified |
1/17/2018 9:08:22 AM Dan -You could sort by 3 month CSTO (combination of daily and weekly Slow Sto 14,3) or CRSI (combination of daily and weekly RSI 4, RSI9 and RSI30. I created the CSTO and CRSI as momentum indicators to allow me to mix 1X, 2X and 3X funds together. So anything above 80 on the CSTO has a lot of strength. Anything over 60 on the CRSI is strong also. |
| StockFetcher Forums · General Discussion · The 36% Solution | << 1 2 >>Post Follow-up |
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