Have again 2 questions about the model and the theory 1. if I instead of the 3 and 12 month performance the 1, 3 and 6 month performance evaluated, you would still add the 200 SMA or choose a say 90 day SMA or similar? 2. does the model or comparable Dual Momenrum strategies also if one is representative of the individual. Asset classes / industries, sectors if it is possible, individual stocks instead of ETFs takes? Have you read anything about this or how do you assess this.
••
1Yr
@Krush82 1. depends on the specific asset allocation, each has different characteristics. But in general it can be said that shortening intervals (1 3 6 months, SMA90, weekly trading) will bring trading frequency up, but not necessarily performance or Sharpe ratio. Ultimately, only backtests answer these questions.
••
1Yr
@Krush82 There are attempts to apply dual momentum to individual stocks. But these are usually more complex with additional rules and a very selected number of stocks. Overfitting of the model is a real danger here. In general, it can be said that dual momentum models work better with indices, as they have lower vola and provide fewer false signals. What you want are steadily rising or falling assets. What you might be able to do is to use dual momentum as a filter for single stock investments. That is, if you want to get into an industry, e.g. AI or gold miners, you create a list of the 20 most fundamentally interesting stocks. Then you create a rule, e.g. buy the 3 most momentum stocks above SMA200 at the turn of the month. Alternatively, one takes the underlying index as a signal asset. This way you should catch the strongest stocks in the boom and make the jump in time when the trend changes. Maybe I will present such a strategy with uranium stocks or gold streamers here. I know the sectors a little.
••
@Epi would be pleased and finds definitely interesting. Evtl I tinker me times there what together and test that just times so incidentally in a sample portfolio.
•
11
•@Epi what I am also considering / thinking about whether you can also apply a momentum strategy for its existing share portfolio. Background is, if I anyway mtl savings plans for the existing shares, why then not on Momentum basis? So always buy the 1-3 stocks that have performed best on 1+3+6 month view. What do you think about this?
•
11
•@Epi why would I have to trade weekly at the 1,3,6 M and SMA 99 ?
••
1Yr
@Krush82 Your suggestion to buy the top 1-3 stocks on 136 months is a classic Relative Momentum approach. The loophole of this system would be to be invested in the top3 even when the entire market or sector is falling. To prevent this from happening, you would need a signal line to tell you when to get out completely. You can do this via an SMA or a signal asset, e.g. sector index or market index.
••
@Epi I know that it would only be an approach of the actual model and would not bring me all the advantages, as you say, in a bear market or the like I would still be invested. With about 10 individual stocks I would always be fully invested anyway. The only thing that the Momentum approach would bring me is that it would tell me where to put the fixed sum x in the aftermarket every month.
••
1Yr
@Krush82 You can try that. But it can also backfire. My experience is that during upward phases of a sector, money flows back and forth between sector stocks. What does well one month, lags behind the next. Of course, it depends on the individual stocks and their correlations, but I suspect that on average you would do better with simple saving than with your suggested approach. But you can't say anything more precise in general anyway.
••
@Epi played around a bit with the backtest and the individual assets last night. Had the feeling that too much diversification S&p 500, mid caps, small caps Euro, EM IMI, plus various bonds and commodities have definitely pushed the CAGR down. At least for the time periods I chose. Seems like less is more. Have you had the same experience or how do you come up with your allocation?
••