Larry,
I like the new tweak to the Bollinger Band system. I'm wondering though, why Altucher would publish his systems for the public and 9000 other hedge fund managers to use. Do you happen to know the recent profitablity of any other strategies he has developed. I notice that new B/B strategy performed poorly in 2004. I'm wondering if he's only publishing strategies that have outlived their usefulness. Could it be that he is successful because he's always developing new strategies to implement when the old systems cease to produce? I also took a quick look at the historical return of the VTO for 2003 it was 20.1%, in 04 it returned 3.2% and this year so far 2.8%. It also seems to be exhibiting a trend towards declining returns. The COT has also been performing poorly for a couple of years now. Although I doubt that it's because too many people are using it.

Gary

Gary, in at least the case of the CoT performance it seems to me that this is a long term capital gains method.

If you judge the strategy on anything less than maybe a five year time span I don't think you are going to get anything like a fair assessment.

Last October there was a bull rally. So what? That was only 7 months go, not seven years.

I think you need to get the right time scale to evaluate any investment approach.

If the COT fails for at least one full year that might start to be significant with regard to the strategy ... or not!

Yesterday, I was experimenting with Altucher's idea -- buying QQQQ components that closed the previous day well below the lower BB. I bought DISH at 27.93. Sold it on the close at 28.24. Bought DLTR at 23.38. Sold it on the close at 23.95.

Gary, I use strategies that I like. And I happen to like reversion to the mean type systems. If you don't think they work, don't use them. It's really simple. But next week I'm going to be posting those kind of trades when I see signals. If someone's interested, fine. That's why I do it. If nobody but me is interested, that's fine too.

By the way, you'll always know when I think something's outlived its usefulness. I'll say so in the SMR and I won't use the system anymore. I don't keep stuff to myself.

Larry

Larry,
I agree, I really like regression to the mean systems. I think the tweak to the BB system will be a great addition. I was mostly wondering why Altucher would publize his profitable systems. Isn't his compensation dependant on performance? And if it is, why would he jeopardize his performance by letting the world know what he's doing?

Gary

Bob write If the COT fails for at least one full year that might start to be significant with regard to the strategy ... or not!


How do you define fail? According to my charts the COT has lagged behind a straight S&P 500 investement over the last one year and two year periods. Of course the 3,4,5, and 10 year periods are winners for the COT.

Dave

Gary,

I assume he made money on his book. I assume he makes money by providing content to Realmoney.com. Also, I assume he's smart enough to know that publishing his systems will not have one iota of an effect on them.

Why did Richard Dennis famously say that he could publish his exact rules in the Wall Street Journal and nobody would follow them? See, these people are smart enough to understand that people don't have the discipline to follow a system. Therefore, it doesn't matter who knows about them.

Larry

Hmm, I just assumed that many hedge fund managers would have the disipline to follow them. The VTO, BB, and the new BB all seem pretty easy to follow. Come to think of it I don't think he developed the VTO though. I thought I remembered reading somewhere that once a system became well known it tends not to work anymore. Didn't the turtle system start to decline (for lack of a better word) after the locals discovered what they were doing?

Gary

In reply to Dave G's question about how I would define the COT method failing, it's quite simple.

If the overall account loses money I consider that a "failing" position.

I am not comparing my profit or loss to another system (such as buy and hold S&P 500). I am just looking at my account balance as a measure of "is this working for me?"

By time scale, I was simply saying that long term strategies like the COT need to be evaluated by long term results.

If a full year went by such that my COT positions were in the red (as they are right now) MAYBE that might be significant. I would need to look back over the longer range backtesting (as Larry does each week in SMR) to see if that kind of thing has happened before or not.

So I define "failure" by my own bottom line and try to evaluate the strategy appropriately. Multi-year strategies will produce bad results from time to time for long periods.

As Larry has suggested, one can either then use trailing stop losses or varying strategies if just riding it out is not acceptable. Everyone truly needs to find their own comfort zone if they are wise in my opinion.

One thing Robert Kiosaki said that his rich dad told him was: "Always question your assumptions."

So in that vain...

When Gary said: "I just assumed that many hedge fund managers would have the discipline to follow them."

Why assume that? Why would a hedge fund mgr have any greater discipline than the rest of us? Also, can we assume that a successful hedge fund mgr already has his own strategies?

Bob said: "If the overall account loses money I consider that a "failing" position."

This needs further delineation. If there's a loss in the account in ONE DAY? or ONE YEAR? And why?

Also...

"If a full year went by such that my COT positions were in the red (as they are right now) MAYBE that might be significant."

Why? Significant to whom? Not the market. What's so special about 365 days? Isn't that a random time-frame that's been given meaning by us humans? Does "the market" really care about or even notice this time frame? If not, then why should we?

These are not statements but questions. It's not the system(s) that make money, it's the trader. A good trader must question his/her biases.

At least that's my assumption.

-ja

Joe,
Here's my assumptions, right or wrong. We're in a secular bear market. I'm assuming that the present bear market will take the same general form as 1966-1982 and the japanese market from 89 to the present. This means we have at least another 10 years or so to go. I'm also assuming that politicians and people in general don't like financial pain. So I think the fed is going to keep pumping the money supply to keep all the markets from deflating. I also think that politicians in general will usually opt for a short term fix to immediate pain as opposed to doing what's neccesary to cure long term problems. I take this to mean a long drawn out bear market. I think we're going to eventually run into the same problem we did in the 70's, stagflation. However I suspect most people would think that the inflation of the 70's and 80's would be preferable to the extreme deflation of the 30's. I believe the COT is going to stay hedged toward the short side until we put in a true bear market bottom. Lets assume for the sake of argument that means the Dow at somewhere around 3000. That's a drop of about 60%. However the COT has been negetive since July of 03 so we're going to have to get back to even first. Generally speaking that means S&P somewhere around 950-1000. So we can expect an average profit somewhere around 5-6% per year for the next 10 years. I'm not taking into account strategy 5's use of margin or the 20% rule so maybe the COT will produce more like 10-15% or maybe there will be to many whipsaws. Who know's. Also maybe the COT will start to time the rallies better. So far however it has only caught a small part of one rally. Generally speaking anyone using the COT should be hoping for long signals if they want to make really good returns for the next decade. Of course any or all of my assumptions could be wrong. If I had to guess I would say I have about a 50% chance of being right

Gary

you made a really great case for being short... then you said:

"Generally speaking anyone using the COT should be hoping for long signals if they want to make really good returns for the next decade."

so now i'm confused. what do you mean here?

-ja

p.s. i've done a bit of reading on biasis in van tharpe's newsletter - www.iitm.com
i think he's done a lot of good work on the subject. we all must trade our assumptions so the more sound they are the better...

my humble opinion.

bob,

after re-reading your post i think i get your p.o.v.* better now. you said:

I am not comparing my profit or loss to another system (such as buy and hold S&P 500). I am just looking at my account balance as a measure of "is this working for me?"

we can look at the COT's history & see that there are down years so holding a loss is not outside the norm for this system. however, if it's not "working for [you]" because you don't like having down years take a closer look at the VTO system results.

http://www.vtoreport.com/rsi.htm

you might find that it suits your personality better. more trading, smaller gains/ smaller losses - about 75% accurate, never a down year (so far).

just a tho't.

-ja



* point of view

Joe,
My point in saying that to make good profits we should hope for long signals doesn't mean that we don't want short signals. Think about it, if the COT stays generally short for the next 10 years we've got a maximum profit of about 50-60%. If history is any indication then I would guess that there is little long term risk in being short the market for the duration. However 50-60% spread over a 10 year period isn't all that good. Certainly not historically typical COT returns. If however the COT were to catch the rallies and then short again at a higher level, great profits would be attainable. So far however 5 years have passed and it hasn't been very good at timing bear market rallies. But who knows maybe things will change.

Gary

Larry,
Here's an idea for the new BB strat. I checked about 20 of the NDX components and it appears that one could use any close above the 10 dma as an exit and have about the same winning percentage but larger profits. Possibly enough movement to use front month options.

Gary

Gary,

Are you saying the profit potential for a shorting is limited because a short position can only gain 100% as the equity approaches zero value? I believe that this is true only if you don't 'reset' your short position as the shorted equity goes down. Think of 'resetting' as rebalancing. The easiest way to do it is to use one of the inverse mutual funds which reset daily. I believe that with a resetting mechanism in place, the profit potential approaches infinity as the equity approaches zero. Am I missing something?

My understanding is that, in inverse funds, the daily resetting leads to what is known as 'beta slippage', which contributes to odd effects such as the fund losing money over a highly volatity periods where the index came out even. (This is in addition to other reasons such the cost of the futures that these funds use and other fund expenses).

Randy