April 29, 2011
In previous tests, I used 2 stocks lists of 43 stocks each with 1 duplicate used as a reference. The outcome has been shown to be impressive even if I say so myself.
To me, the real test was to apply the same "improved" script on an entirely different list of stocks. Will the edge be maintained? Will the procedures maintain sustainability, marketability and remain realistic over the entire testing interval? With the same selection criteria as the first two tests, here is a third batch.
It is not the best of selection processes but it is "a" selection. I am not sure if I would have picked the above stocks some 6 years ago, but then again, I did not have this script 6 years ago. A different script name was used as a basis to implement the trading procedures. The improved script still showed, at least to me, that one could aim for a 50% compounded return over an entirely different stock list; sure the stock selection was again on the lazy side.
You have three stock groups, almost randomly selected (with an upside bias, I agree) and with all stocks highly tradable on a daily basis where your participation would certainly go unnoticed especially with a bet size of 5k.
What would your preferred script do using the same stock selections? Can your script do better? If it can, I would certainly be interested in comparing methodologies. Here is the link to the spreadsheet where you will find the results of the last 3 tests using the improved trading procedures. You can fill in your own numbers for comparison. (The spreadsheet is no longer available).
The above test should have blown me away. Testing a script on a totally different list of stocks should have shown a total performance degradation as if the script was optimized for the previous stock list but could not be for an unknown and untested list of stocks. Yet, the performance was there. And more than acceptable...
The reason is relatively simple. The whole trading process is based on mathematical equations where price variations dictate the trading procedures following equations as presented on page 33 of the Jensen Modified Sharpe paper.
(click to enlarge)
( click to enlarge)
Created on ... April 29, 2011, © Guy R. Fleury. All rights reserved.