We'll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.
BOOK YOUR FREE STRATEGY SESSION NOW >>This video completes our analysis of the results you can get by trading sideways stocks from the most important US stock indexes.
In the first two videos, we tested the strategy using one month as the interval for the rebalancing of the portfolio and the rankings. Today, instead, we continue the tests that we started last using an interval of one week.
Watch the video to find out if trading Russell 1000 and S&P 500 sideways stocks can give you an advantage!
Good morning everybody and welcome to this new video.
Today we’re gonna be talking about US stocks and, in particular, we finish our analysis of trading sideways stocks with a rotational portfolio.
So let's continue with the tests that we started last week, that is, with a weekly rather than a monthly rotation. What we're going to do today is test this strategy on the S&P 500 and Russell 1000 indexes.
So, here is the software that we created internally at Unger Academy for carrying out these kinds of tests. I remind you that this software is exempt from the problem of Survivorship Bias because we consider all the changes that occurred on the indexes throughout their history. So, actually, in the interval considered (which goes from January 1, 1995 to the most recent available date) we analyze the indexes taking into consideration all the changes that occurred over the years and, consequently, we don't have the problem of risking to consider stocks that have been delisted over time.
So let's start with Russell 1000. The rotation occurs weekly, more in detail, every weekend. The reference period for creating the ranking is 5 days, and we'll pick only the stocks that go from the 450th up to the 550th in descending order.
So let's take a look at the results. The equity line is pretty good. Apart from an initial period in which it performed more or less like the benchmark, it seems that it generally outperformed it, especially in recent years.
However, we can’t ignore this extremely high drawdown, which took place in the most acute phase of the Covid pandemic in 2020, because such an event, if it were to happen again, would certainly hurt this strategy.
It went through the early 2000s pretty well. However, that is quite a distant period in time and, since then, the markets have slightly changed, so it is possible that in the future, the strategy won’t behave in the same way. In 2008 it struggled quite a bit. Actually, it suffered more or less like the benchmark, but what's interesting is that it recovered much faster.
Anyway, I'd like to tell you that, in my opinion, this strategy has a big problem due to which I wouldn't trade it as it is now. The problem is very simple: changing 100 stocks every week is obviously extremely expensive. I like this kind of approach but I believe that, before using it, it'd be better to refine it to make it more accessible. Using it as it is now would mean paying commissions on 100 stocks every week, which would be a very large amount of commissions, so it wouldn't be worth it unless you obviously have a huge capital of course.
Now let's see what happens on S&P 500. As you can see, even in this case, the results are pretty good and interesting. Note that on S&P we select 50 stocks instead of the 100 we picked on Russell 1000 to have sort of an equivalent approach to the two indexes.
The strategy performed more or less in the same way, perhaps even better in the early 2000s. We see that it produced particularly good results in the last period, while in 2008-2009 – just like Russell – it suffered like the benchmark. However, it recovered faster than it, so it seems that there's some advantage in these kinds of conditions.
In this case, too, the strategy suffered quite a lot during the most acute phase of the Covid pandemic. This clearly means that we should pay particular attention to turbulent market conditions. In fact, this approach doesn't seem to be able to protect us in such conditions.
The drawdown percentage of the strategy is almost identical to that of the benchmark. However, also in this case, we have the same problem we have with Russell. Rotating 50 stocks per week is obviously pretty expensive and it would probably be quite difficult to cover commissions and slippage and still make a good profit.
So let's say that it's a good idea, but personally, I'd prefer to work on it and look for a more refined version, perhaps with some filters that allow for reducing the impact of commissions and slippage.
And that’s it for this video!
'Till the next video, thank you for watching, see you soon! Bye Bye!
We'll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.
BOOK YOUR FREE STRATEGY SESSION NOW >>Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.
I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems.
In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.
Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.
Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.
