Please be respectful of others' privacy, and avoid sharing personal information or sensitive content without their permission. If you are unsure if something is appropriate to share, ask for permission (use the 'Privately email' option when replying to their post) or avoid sharing it altogether.
- Manlobbi
Investment Strategies / Mechanical Investing❤
No. of Recommendations: 18
Back on 11/23/2021 I posted on the Saul Investing board, and here on the Mechanical Investing board a relatively simple way to manage risk by using overbought / oversold indicators built off of the Software as a Service sector. The method finds times when these four groups of stocks become way overbought to produce a sell and way oversold to produce a buy.
1. Cloud Computing
2. SAS SIC Code Based
3. SAS via ETF holdings
4. Saul Picks
I then combine the results to arrive at a consensus to produce signals. The following are the results for 2022. When a buy signal is issued the Saul Picks are held equal weighted, and when a sell signal is issued the same Saul Picks are shorted.
Date Signal P % G/L
1/5/2022 BUY L 2.51%
1/12/2022 SELL S 10.75%
1/18/2022 BUY L 2.89%
1/31/2022 SELL S 7.56%
2/22/2022 BUY L 6.55%
2/28/2022 SELL S 19.78%
3/7/2022 BUY L 17.79%
3/18/2022 SELL S 44.97%
5/11/2022 BUY L 14.97%
5/27/2022 SELL S 13.94%
6/14/2022 BUY L 17.34%
6/23/2022 SELL S 7.51%
6/30/2022 BUY L 15.58%
7/7/2022 SELL S 12.70%
7/14/2022 BUY L 12.56%
7/20/2022 SELL S 12.87%
7/26/2022 BUY L 23.75%
8/3/2022 SELL S 8.03%
9/1/2022 BUY L 10.50%
9/9/2022 SELL S 15.92%
9/23/2022 BUY L 9.03%
10/4/2022 SELL S 15.63%
10/11/2022 BUY L 4.62%
10/18/2022 SELL S 20.01%
11/4/2022 BUY L 17.69%
11/11/2022 SELL S 10.24%
11/21/2022 BUY L 4.59%
12/1/2022 SELL S 10.12%
12/6/2022 BUY L 17.46%
12/13/2022 SELL S 9.07%
12/19/2022 BUY L 2.11%
12/31/2022 END
What is most remarkable about the strategy is that there were no losing trades throughout 2022.
When I posted this idea on the Saul Investing board it was deleted almost immediately. They would have none of it. Such a simple method, but some dogs just won't learn new tricks!
I would suggest that during high volatility bearish periods the most gains are had trading on both sides of the market, and this requires learning some new tricks now and again.
Zee
No. of Recommendations: 6
No. of Recommendations: 2
Hi Zee,
Thanks for that. Could you please give the link where you explain what signals you use for deciding the overbought and oversold conditions, which in turn dictates your entry and exit.
I tried searching but for some reason, I am not able to get hold of that.
Thanks again,
Charlie
No. of Recommendations: 1
No. of Recommendations: 0
Hi,
I have found your blog but I am unable to register, it says that my Username is not the same I use on TMF. My eyes tell me I use 'Jordrok' on TMF so I'm stuck.
Anyway, I'd pay to get just 10% of those returns!
No. of Recommendations: 1
Yes, my blog was originally set up such that only those who were members on the Motley Fool would be allowed in. Since MF has changed their site this is no longer working. Consequently, if you send me an email by hitting 'Privately email' at the bottom of one of my posts I'll add you manually. Hopefully, this will not be opening the floodgates. I'm very pressed for time right now as I'm wrapping up my annual 'Perspective for 2023' article.
No. of Recommendations: 7
BTW, it is possible to use QLD/QID as proxies rather than holding multiple positions in Saul stocks. The signals still rely on SaaS companies to determine states where they are overbought or oversold, but it is much easier to just buy a single ETF.
Date Signal P % G/L
1/5/2022 BUY L 1.63%
1/12/2022 SELL S 8.80%
1/18/2022 BUY L -4.40%
1/31/2022 SELL S 13.34%
2/22/2022 BUY L 5.21%
2/28/2022 SELL S 13.63%
3/7/2022 BUY L 16.44%
3/18/2022 SELL S 37.19%
5/11/2022 BUY L 11.31%
5/27/2022 SELL S 23.43%
6/14/2022 BUY L 6.42%
6/23/2022 SELL S 2.63%
6/30/2022 BUY L 10.58%
7/7/2022 SELL S 5.72%
7/14/2022 BUY L 11.45%
7/20/2022 SELL S 5.63%
7/26/2022 BUY L 19.89%
8/3/2022 SELL S 15.19%
9/1/2022 BUY L 4.94%
9/9/2022 SELL S 22.42%
9/23/2022 BUY L 4.40%
10/4/2022 SELL S 14.73%
10/11/2022 BUY L 6.31%
10/18/2022 SELL S 4.13%
11/4/2022 BUY L 17.50%
11/11/2022 SELL S 4.34%
11/21/2022 BUY L 8.15%
12/1/2022 SELL S 8.47%
12/6/2022 BUY L 4.89%
12/13/2022 SELL S 13.56%
12/19/2022 BUY L -3.04%
12/31/2022 END
The maximum drawdown using this approach is -15.56%. The Dow has a max DD of -21.10% during 2022. So the method reduces drawdown while enhancing return, but it is a whole lot of trading and demands daily updating right after the close.
No. of Recommendations: 3
The
datahelper (
http://www.datahelper.com/mi/search.phtml) is magical....Simply
1. enter 'Saul Investing - Managing Risk!' in
Subject contains input field.
2. Verify 'Match All of These Words' is selected in corresponding
constraint3.
Board field has 'Mechanical Investing' selected
4. Enter appropriate date range (This query is quite fast. i.e. you can provide a large date range)
5. Select
Search.
You get original and all replies to this post.
No. of Recommendations: 0
Date Signal P % G/L
1/5/2022 BUY L 1.63%
1/12/2022 SELL S 8.80%
1/18/2022 BUY L -4.40%
1/31/2022 SELL S 13.34%
What does the %G/L column express? The maximum rise/drop after a BUY/SELL signal?
No. of Recommendations: 1
The % G/L equates to Gain/Loss. In other words, the percentage gain for that signal.
No. of Recommendations: 0
The % G/L equates to Gain/Loss. In other words, the percentage gain for that signal.
I get that, but what is the exit criteria? Until the next opposite signal? A certain number of days? Something else?
No. of Recommendations: 6
Aguila asked: I get that, but what is the exit criteria? Until the next opposite signal? A certain number of days? Something else?
If you read the previous posts on the MTF, it provides the answer to your questions. It is basically taking the individual stocks in each index and determining whether each one is overbought or oversold, and then calculating the percentage that are on any given day. When this percentage hits a pre-determined level a signal is issued, either a buy or a sell.
Once the signal is issued you act on it in a disciplined and mechanical way either buying long the stocks in the list, or selling short. Rinse and repeat.
No. of Recommendations: 5
Aguila wrote 'I get that, but what is the exit criteria?'
Hold only one ETF.
Hold QLD when the signal is BUY.
Hold QID when the signal is SELL.
I downloaded closing prices for QLD and QID, and calculated the same gains Zeelotes posted:
calc close close
Date Signal P %G/L buyThis gain QLD QID
1/5/2022 BUY L 1.63% QLD 1.63% 82.75 16.67
1/12/2022 SELL S 8.80% QID 8.80% 84.09 16.34
1/18/2022 BUY L -4.40% QLD -4.40% 76.87 17.78
1/31/2022 SELL S 13.34% QID 13.34% 73.49 18.33
2/22/2022 BUY L 5.21% QLD 5.21% 63.18 20.78
2/28/2022 SELL S 13.63% QID 13.63% 66.47 19.56
3/7/2022 58.04 22.23
Either hold QLD or QID. For example,
buy QLD on Jan 5th at 82.75
sell QLD on Jan 12th at 84.09
gain was 1.63%
No. of Recommendations: 6
Yes, lizgdal, that is correct if you are actually holding QLD/QID. This was just to show that even holding a single ETF works, but the normal strategy is to use the Saul Picks themselves as your investment vehicle. Let me illustrate with one long holding and one short holding period mid-2022.
7/20/2022 SELL $8,538.59 $64,891.99 12.87% 648.92% 3711.77%
Symbol Hold # Entry Date Exit Date Entry Price Exit Price % G/L
DDOG Hold 1 7/20/2022 7/26/2022 $100.88 $85.72 15.03%
SNOW Hold 2 7/20/2022 7/26/2022 $156.90 $130.12 17.07%
BILL Hold 3 7/20/2022 7/26/2022 $138.75 $120.20 13.37%
S Hold 4 7/20/2022 7/26/2022 $26.25 $23.01 12.34%
CRWD Hold 5 7/20/2022 7/26/2022 $184.30 $169.17 8.21%
NET Hold 6 7/20/2022 7/26/2022 $53.00 $45.68 13.81%
MDB Hold 7 7/20/2022 7/26/2022 $307.57 $266.70 13.29%
MNDY Hold 8 7/20/2022 7/26/2022 $105.19 $94.85 9.83%
7/26/2022 BUY $17,788.38 $82,680.36 23.75% 826.80% 4706.93%
Symbol Hold # Entry Date Exit Date Entry Price Exit Price % G/L
DDOG Hold 1 7/26/2022 8/3/2022 $85.72 $112.42 31.15%
SNOW Hold 2 7/26/2022 8/3/2022 $130.12 $162.37 24.78%
BILL Hold 3 7/26/2022 8/3/2022 $120.20 $143.41 19.31%
S Hold 4 7/26/2022 8/3/2022 $23.01 $27.10 17.77%
CRWD Hold 5 7/26/2022 8/3/2022 $169.17 $195.32 15.46%
NET Hold 6 7/26/2022 8/3/2022 $45.68 $58.36 27.76%
MDB Hold 7 7/26/2022 8/3/2022 $266.70 $339.31 27.23%
MNDY Hold 8 7/26/2022 8/3/2022 $94.85 $120.04 26.56%
No. of Recommendations: 4
This is how I combine the various stock baskets to produce a signal.
https://www.zeelotes.org/Overbought-Oversold_Strat...FYI: As with anything like this you need to have a layer on top that determines where you are in the cycle. In other words, it is not wise to short stocks in a strongly bullish market environment, e.g. when the FED is flooding the economy with liquidity and easing monetary policy.
No. of Recommendations: 4
Hi All,
This is always in interesting thread, but again the actual implementation details are where the devil lives. The standard overbought/oversold indicators are the RSI signal, using a 14-day lookback. With GTR1 down, I am not sure we can test this as an alternative, but it seems to me that we can look at a basket of stocks and its appropriate RSI as well (never done this myself).
Thus, it would seem to be that we could take the RSI from Cloud Stocks, SaaS Stocks, and Saul Stocks and average that and see where you fall. RSI seems to be bullish below 30 and bearish above 70.
It seems that with these particularly high volatility stocks, figuring out when it is "safe to be in the water" would be an excellent improvement.
--G
No. of Recommendations: 9
hiphop wrote:
Thus, it would seem to be that we could take the RSI from Cloud Stocks, SaaS Stocks, and Saul Stocks and average that and see where you fall. RSI seems to be bullish below 30 and bearish above 70.
RSI is a long-term indicator. It works well for what it was designed for, but for the purposes of identifying short-term transitions in volatile stocks it is useless.
No. of Recommendations: 1
OK, so given that RSI is out, what methods/technical indicators are better suited for short term transitions? I seem to recall that you were using consensus coverage but that seems a bit hard to quantify. For example, one of the current SAUL favorites is Samsara (IOT):
From the finvis page (
https://finviz.com/quote.ashx?t=IOT&p=d) it has a box called "recom" which is "Analysts' mean recommendation (1=buy, 5=sell)" as 2.3.
UPST has the same field as 3.90 (yikes).
Is the idea to do an average of this along with the SaaS and Cloud ETFs to generate the short term transitions?
Thanks, G.
No. of Recommendations: 10
Hiphop, there's absolutely nothing truly "mechanical" about the Saul picks, or generating new ones.
The finviz page is just doing what 14 or 24 or 34 other financial websites do - total buy recommendations from analysts - sell recommendations or that falsely accurate rating average. It's groupthink and it means *nothing* other than it's an aping of recent momentum. Same as its been for 30 years - not many analysts make money or survive by being contrarian. The analyst's ratings are notoriously too bullish, and late to "sell". We can do that ourselves.
Short term transitions can be identified by looking at a stock's PPO, or more confusingly MACD, and relationship to moving averages. Combined with volume, combined with is the price at "extremes" in relation to its moving averages. When they start turning down, you have to be willing to pull the trigger - and buy again when the bullish transition happens. The big risk is this leads to whipsaw and trading losses. I read somewhere years ago that if you win 55% of your trades you're doing really well.
Investors.com (Investors Business Daily) has for a very long time been the master of teaching people how to short term swing trade based on conditions like a 3 day bullish up move followed by a short pullback, etc.
FC
No. of Recommendations: 11
hiphop asked:
Is the idea to do an average of this along with the SaaS and Cloud ETFs to generate the short term transitions?No. What you need is to find technical analysis indicators that identify points of extreme on the overbought and oversold sides. You do this for every stock in the universe and then average their readings to arrive at a consensus. Once you've done that you simply determine thresholds for buy and sell. Here are the values I use for the first month and a half of this year.
Average Average
Date BULL BEAR Signal
1/3/2023 0.80% 30.09% SELL
1/4/2023 13.27% 27.79%
1/5/2023 45.89% 3.48%
1/6/2023 54.35% 4.06% BUY
1/9/2023 14.81% 16.91%
1/10/2023 11.17% 7.51%
1/11/2023 2.08% 29.25% SELL
1/12/2023 2.22% 29.46%
1/13/2023 1.49% 15.89%
1/17/2023 0.81% 39.61%
1/18/2023 1.95% 12.45%
1/19/2023 35.57% 2.15% BUY
1/20/2023 9.60% 6.29%
1/23/2023 2.35% 33.24% SELL
1/24/2023 2.08% 12.57%
1/25/2023 16.26% 2.60% BUY
1/26/2023 1.76% 29.73%
1/27/2023 4.72% 30.79% SELL
1/30/2023 8.14% 2.54%
1/31/2023 7.07% 8.60%
2/1/2023 0.58% 53.60%
2/2/2023 0.58% 83.79%
2/3/2023 4.77% 3.22%
2/6/2023 13.92% 3.06% BUY
2/7/2023 28.61% 3.05%
2/8/2023 14.12% 4.68%
2/9/2023 23.14% 9.33%
2/10/2023 48.73% 5.70%
2/13/2023 21.83% 2.07%
2/14/2023 13.00% 7.33%
2/15/2023 4.00% 32.48% SELL
Trading ResultsThis is based on holding all the Saul picks long during a buy and selling all them short during a sell.
Date Signal % G/L
1/3/2023 SELL 9.48%
1/6/2023 BUY 7.55%
1/11/2023 SELL -0.08%
1/19/2023 BUY 9.08%
1/23/2023 SELL 2.99%
1/25/2023 BUY 8.18%
1/27/2023 SELL 1.11%
2/6/2023 BUY 14.69%
2/15/2023 SELL 11.39%
No. of Recommendations: 2
No. What you need is to find technical analysis indicators that identify points of extreme on the overbought and oversold sides. You do this for every stock in the universe and then average their readings to arrive at a consensus. Once you've done that you simply determine thresholds for buy and sell.
So the real question is what technical analysis indicators are useful, since RSI seems to be useless for this application, what are better ones?
--G
No. of Recommendations: 6
Said asked:
So the real question is what technical analysis indicators are useful, since RSI seems to be useless for this application, what are better ones?A simple search in google came up with these articles on the subject:
https://www.investopedia.com/ask/answers/121214/wh...https://www.tradingtrainer.com/whats-the-best-over...https://tradermake.money/blog/overbought-and-overs...https://www.metastock.com/customer/resources/taaz/...It is all about the parameters used. If you are aiming for short-term movements, which you should be in a bearish environment, then you have to employ parameters that identify fast moves. During a bullish environment you do the exact opposite - you use parameters that rarely produce a signal. Intermediate finds values between these two.
You'll note that RSI is mentioned. With the right parameters I suppose it would work, but it has to be short-term, not measured in weeks or months.
RSI and stochastics are available on most charting applications, and the default setting is 14 periods, which can be days, weeks, or months.At seven periods measured in days it may work. I've not tried it, at least not in the last twenty years or so. I did all my original TA work in the 90s.
No. of Recommendations: 2
Hi Zeelotes,
Thanks for sharing your knowledge and experience.
Please, do you have any favorite indicator or tool to distinguish between a bearish and a bullish environment?
Thanks a lot,
Juan Carlos
No. of Recommendations: 11
Juan asked:
Please, do you have any favorite indicator or tool to distinguish between a bearish and a bullish environment?The key to identifying the environment is achieved not by having any one or two favorite indicators, but rather, by having an arsenal of indicators that are tracked in unison and combined to arrive at a consensus. Some of the indicators identify bearish conditions only, while others identify bullish conditions only, and then you have some that identify both. The key is to track these on a daily basis and then act on the clear signals they produce. Let me illustrate with a chart of the long-term indicators I track. The green line is the consensus of the bullish long-term indicators, while the red line is a consensus of the bearish long-term indicators.
https://www.zeelotes.org/LT_Consensus_Signals.PNGIn late August of 2021 the two lines crossed which issued a warning that it was time to begin exiting long positions and begin taking on a defensive posture.
At the start of October 2022 the two lines crossed back with bullish indicators rising above bearish indicators. This was a sign that it was time to do the opposite.
This sets the stage for a change in perspective. Intermediate and short-term indicators actually identify the exact point to act. On the bullish side, for example, that signal came on 10/13/2022. So the long-term indicators prepare you for action, while the other two tell you when to actually pull the trigger.
No. of Recommendations: 2
Thanks,
I have to do my homework to create a consensus of bullish and bearish indicators.
To find the ones that work best, I should back test them in relation to an index.
But maybe, investing in "SAAS stock" has different trends than SP500 stocks.
My question is, in order to create a good team of bullish and bearish indicators, do you backtest them with wide indices like SP500 or Russell 2000 or with more specific ETF's (might be WCLD if I want to invest in "Saul stocks" or IWM if we intend to invest in small-cap stocks).
Thanks again,
Regards.
Juan Carlos
No. of Recommendations: 12
Juan stated:
But maybe, investing in "SAAS stock" has different trends than SP500 stocks.The chart I presented is for a long-term perspective and would work for SaaS stocks, and the US stock market in general. The trades I presented for SaaS stocks are traded within the framework of the long-term view. In other words, the actual parameters you use are significantly impacted by the long-term outlook. During a bear market your expectation is that your holding length will be shortened dramatically compared to a bull market. Your bias is on the short/inverse side. During a bull market your bias becomes bullish and you time holding a position is skewed to a longer length of time.
Juan asked:
My question is, in order to create a good team of bullish and bearish indicators, do you backtest them with wide indices like SP500 or Russell 2000 or with more specific ETF's (might be WCLD if I want to invest in "Saul stocks" or IWM if we intend to invest in small-cap stocks).All research is done based on the primary indexes - Dow30, SP500, Nasdaq Composite, NDX100, etc.
Another important component in trading the market is to know what to invest in. Every year I write a "Perspective" article that helps set the stage for the year. On 1/1/2023 I released this and stated:
The optimal investment vehicles in PY3 are tech related universes (Nasdaq 100, Nasdaq, Semiconductors and Business Equipment). If historical precedent has anything to say about 2023, do keep this in mind.Based on: 6/23/2023 YTD % YEAR % 104 Wk Low % Dif Symbol
United States Markets
The Nasdaq 100 34.91% 27.30% 10/13/2022 42.63% ^NDX
The Nasdaq 27.75% 20.12% 10/13/2022 33.74% ^IXIC
S&P 100 18.71% 17.26% 10/13/2022 29.12% ^OEX
Wilshire 5000 15.91% 18.22% 10/13/2022 26.39% ^DWC
S&P 500 12.85% 14.56% 10/13/2022 24.54% ^GSPC
Russell 1000 12.50% 14.08% 10/13/2022 23.73% ^RUI
Dow Transport 9.36% 12.70% 9/26/2022 22.95% ^DJT
Russell 3000 11.93% 13.64% 10/13/2022 22.94% ^RUA
Dow Composite 3.28% 10.62% 10/13/2022 18.09% ^DJA
Dow Jones Industrials 1.75% 9.94% 10/13/2022 17.68% ^DJI
SPDR S&P 1500 Value Tilt ETF 4.08% 10.80% 9/30/2022 16.63% VLU
NYSE Composite 1.87% 7.41% 10/13/2022 16.49% ^NYA
Value Line 4.03% 7.25% 10/13/2022 15.18% ^VLIC
S&P Mid Caps 3.48% 11.56% 9/27/2022 15.05% ^MID
Russell 2000 2.93% 6.42% 6/16/2022 10.98% ^RUT
S&P Small Caps 0.25% 4.35% 9/27/2022 10.25% ^SML
Dow Utilities -6.88% -3.56% 10/13/2022 9.57% ^DJU
AMEX Select Sector SPDRs YTD % YEAR % 104 Wk Low % Dif Symbol
Energy -9.27% 13.98% 8/19/2021 86.99% XLE
Technology 34.67% 32.19% 10/13/2022 50.38% XLK
Consumer Discretionary 27.98% 18.01% 12/28/2022 31.98% XLY
Industrial 5.40% 22.48% 9/30/2022 26.43% XLI
Materials 3.34% 10.67% 9/27/2022 21.08% XLB
Consumer Staples 0.09% 5.92% 10/10/2022 13.64% XLP
Health Care -2.13% 5.55% 6/16/2022 13.45% XLV
Financial -4.06% 7.18% 10/13/2022 12.40% XLF
Utilities -6.60% -1.19% 10/13/2022 10.34% XLU
US Industry Indices YTD % YEAR % 104 Wk Low % Dif Symbol
Semiconductors 42.83% 43.89% 10/13/2022 78.77% SMH
Oil -9.20% 6.81% 8/19/2021 76.71% ^XOI
Disk Drives 44.25% 47.52% 10/13/2022 67.63% ^DDX
Computer Technology 49.73% 40.99% 10/13/2022 59.67% ^XCI
Oil Services -9.07% 15.13% 8/19/2021 59.01% ^OSX
Computer Hardware 33.22% 30.50% 10/13/2022 56.22% ^HWI
Airlines 41.76% 31.34% 10/3/2022 51.58% ^XAL
First Trust Dow Jones Internet Index 27.60% 21.06% 11/4/2022 38.93% FDN
Technology 17.31% 21.82% 10/13/2022 35.67% ^PSE
Gold -2.98% -1.11% 9/26/2022 32.05% ^XAU
Biotechs 3.14% 22.07% 6/14/2022 31.19% ^BTK
PowerShares DB Commodity Tracking ETF -5.95% -16.00% 8/20/2021 28.84% DBC
Broker Dealers 3.69% 23.17% 6/16/2022 28.08% ^XBD
Retailers 22.98% 19.29% 11/9/2022 27.82% ^RLX
Network 4.22% 20.20% 7/5/2022 24.68% ^NWX
Insurance -3.75% 10.35% 7/19/2021 21.35% ^IUX
Drugs 0.86% 8.07% 9/28/2021 20.06% ^DRG
Chemicals 3.34% 9.77% 10/13/2022 19.56% ^CEX
iShares U.S. Healthcare ETF -1.63% 5.48% 6/16/2022 13.93% IYH
Banks -22.83% -23.22% 5/4/2023 11.45% ^BKX
Utilities -7.59% -1.40% 10/13/2022 8.96% ^UTY
iShares U.S. Telecommunications ETF -4.36% -12.18% 10/13/2022 8.85% IYZ
REITs -3.40% -9.78% 10/13/2022 8.17% ^DJR
S&P Banks -12.56% -9.01% 5/4/2023 8.14% ^BIX
