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I trade a mutual fund switching model that uses momentum in two ways:
<P>1. to enter the new "hot" funds
<BR>2. to rank existing trades to see if their relative strength is fading
<P>After reading the anchored momentum article in TASC, I tested the idea
on both my entries and exits. I also tested smoothing the latest
price with a moving average. I tested the 16 different combinations
of original momentum, smoothing, and anchored momentum on BOTH the entries
and exits. For example, you could have a system that uses smoothed
AND anchored entries since one deals with the most recent price (smoothing)
and the other deals with a price in the past (anchored) for both entries
and exits.
<BR>
<P>In general...
<BR>For the <U>entries</U>, my findings were:
<BR>1. smoothing the latest price does more damage than good (on both the
entries and the exits)
<BR>2. Using anchored momentum, the average profit on all trades increased,
the number of trades decreased, the win/loss ratio (#wins / #losses) decreased
slightly, and the average length of the trades remained constant.
<P>For the <U>exits</U>, my findings were:
<BR>1. again, smoothing did not offer any advantages
<BR>2. The biggest benefit of anchored momentum was the reduction of whipsaw
trades. Newbies: a whipsaw occurs when the system exits a fund one
week, only to reenter the next. What makes these whipsaws even more
painful, is that in order to trigger a new trade, the fund must have a
great week that the system just missed out on. With anchored momentum,
the system simply doesn't exit. In addition, the number of trades
decreased, the average profit jumped (from 4.17% to 4.92%), the average
length also increased (from 7.59 weeks to 8.63), and the win/loss ratio
decreased slightly (from 69.58% to 68.12%).
<P>I will institute anchored momentum in my trading starting this week
(on the exits only).
<P>I realize how anchored momentum affects my system may not be a sweeping
endorsement since my system has characteristics of its own, but I do believe
you can draw general conclusions from the testing I have done. I
hope this helps!!
<P>Bill Bancroft
<BR> </HTML>
</x-html>From ???@??? Sat May 09 01:35:29 1998
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Date: Thu, 30 Apr 1998 10:31:21 -0400
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From: Donald Thompson <detomps@xxxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Subject: Re: S&P 500-EW Toast
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Tom Stein wrote:
> IF we open above 1104.00 and don't go below 1104.00 in the day SPM8....we
> may have created a rare island reversal in the S&P's......
>
> This would also give evidence of a completed ABC correction, which implies
> new highs on the way......
>
> Let's watch and see.......
>
> Tom Stein
> comfut@xxxxxxx
I was perusing a few web pages... Was quite bearish. IMHO...I think the
EW bears became toast at 1110.97.
Don
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