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Just something to check with our European friends, Primoz Golle, Dimitar Dimitrov and Davidii111: I understand that trading US-based ETFs is not possible due to regulations. I just wanted to check: Could you trade call options, e.g. on TLT, instead of trading the actual ETF (assuming you have successfully requested the trading permission for options on IB)?
For instance, here is a Yahoo Finance list of options for TLT: list. Could you for instance trade the first option in the list, TLT210604C00110000?
If yes, it might just be a question of creating a version where we do not trade TLT but a corresponding call option, or a basket of suitable call options.

If options are not a possibility, wouldn't it be possible to trade an EU equivalent ETF if running LEAN as a local instance? e.g IDTL

When running live, the algo intermittently does not pick stocks when starting algo or going back in. Just had in signal Monday and no stocks were picked again. Starting the algo 5 minutes after open instead of exactly at open just in case launching for the first time and warm up needs to happen. Anyone else encountering this?

Thanks for sharing the issue, Ton86. I am wondering whether adding “not self.Portfolio.Invested” as an additional condition for refreshing the universe and rebalancing the ‘in’ and ‘out’ side might help address the issue.

Just one quick additional thought, Ton86: Not sure whether you consistently use minute resolution for all algo components. Using minute resolution might also help address issues in Live trading, see the earlier post by Alexandre Catarino.
Let me/us know how you go. When you have figured out what is going (or someone else does), I think that these will definitely be interesting lessons learned for many, so feel free posting these here in this thread.

Thank you Peter Guenther. I have been running “res = Resolution.Minute” since going live. I will try adding “not self.Portfolio.Invested” next week as an additional condition and provide feedback. Best.

Hi, My understanding is that there are two variants:

a) SEL[QualUp] + I/O[In & Out]

b) SEL[Earnings Rockets] + I/O[The Distilled Bear] 

does anyone have the correlation between the two strategies. If the correlation is low then it might be worthwhile to run both in parallel.

That is a valid thought, Narendra Kulkarni!
Technically, there are more possible combinations, which we get by mapping the full factorial of the stock selection strategies that were discussed in this thread ([TQQQ], [ValuationRockets], [QualUp], and [F-Score]) and the in & out strategies discussed here ([InOut] and [DistilledBear]). So, this gives you 4 x 2 = 8 possible combinations.

In terms of the correlation idea, what you could be doing is to run the backtests for the two combos you have listed and, in the backtest results (you may have these already available from your earlier tests), copy the monthly returns (select: Total Net Profit) from the results' Overview tab into an Excel sheet to calculate the correlation using Excel's correl function. If you are happy to share, it would be interesting to see what comes out of this calculation.

Thanks you Peter. I can do what you suggest, however I would prefer to do using code. Is there any way to compute strategy correlations using quantconnect code? If someone can give me any pointers, I am happy to code. Secondly, my thought was that if the correlations between the different variants are low enough, we could simply combine them using some formula. Maybe risk parity, or equal weighting. More importantly if the strategies are overfit, hopefully these errors will somewhat cancel out and we wont get burnt in live trading.

My understanding of the quantconnect platform is that for us to run multiple algos in parallel we need to use the multiple alpha models. So should we first focus on converting some of the existing code to the multiple alpha framework? This will allows us to combine the different versions of in and out and run them in parallel.

Fantastic idea, Narendra Kulkarni! I remember that a few months ago Zicai Feng has translated Strongs's Piotrosky F-score algo version into an Algo Framework (link to the post). So this might be the perfect base to build the Multi-Algo Framework from.

The suggested quick-and-dirty correlation test using the Backtest returns of the individual strategies could be an initial face-value assessment regarding the likely gains of combining the strategies in a multi-algo framework. However, the multi-algo framework will provide a more precise picture.

Implementation re Live trading recovery
vidal boreal correctly noted elsewhere that the self.dcount and self.outday variables reset to zero when live trading is interrupted, meaning that the algo effectively ‘forgets’ that it went out of the market and wanted to stay out for some time.
The attached backtest uses the ObjectStore to save the dcount and outday as important state information of the algorithm that can be recovered in case of an interruption. To illustrate the approach, I am using the old (p. 2 of this thread) [In & Out / Distilled Bear] + [QualUp] code. The important lines are:

Lines 298-301: Tries to retrieve dcount and outday from the ObjectStore if they are zero (i.e. the algo restarted) and the info exists in the ObjectStore.

Line 334: If running live, a function to save dcount and outday is called on a daily basis.

Lines 416-418: This is the function that actually saves dcount and outday to the ObjectStore.

Feel free to copy and paste these lines into your algo version.

hmm… I am receiving the following error stated below when I ran the algo attached in the post: :Implementation re Live trading recovery. I remember solving something like this before. Let me see if I can find a solution for this.

Thanks for sharing this bug, spacetime. Second try. I have made the following additions/changes:
1. Line 297: check for whether self.history actually has data. Only proceed if it does.
2. Line 245-246: saved the benchmarks for the debt and tips basis differently, without requiring that dcount is 0.
3. Line 255-258: removed a bunch of double squared brackets which are not required.

Let me know in case the bug persists and I'll have another look.

tested it from self.SetStartDate(2015, 1, 1) and have not received any errors

Disregard…Cloned the wrong one

Peter Guenther I'm trying your last posted Algo and getting a runtime error, any idea why?

Runtime Error: Trying to retrieve an element from a collection using a key that does not exist in that collection throws a KeyError exception. To prevent the exception, ensure that the SHY key exist in the collection and/or that collection is not empty.

  at _validate_read_indexer

    key=key in indexing.py: line 1176

  

Given the current equity market uncertainties (esp. regarding inflation expectations driving up bond yields), this might not be the best time to make risky leveraged investments in Tech. Anyway, I could not help it and had to try out the new In & Out v8 algo with one of the ‘old classics’ of this thread: holding the TQQQ :)

Somewhat relevant for the TQQQ holding strategy in the previous post and discussed earlier in this thread, I found this paper on SSRN (by Lewis A. Glenn). Title and abstract below.

Title: Long-Term Investing in Triple Leveraged Exchange Traded Funds
Abstract:
The phrase long-term investing in triple leveraged ETFs is somewhat of an anathema for investment academicians. As a result of daily rebalancing and so-called beta slippage or “the constant leverage trap” it is highly likely over the long term to significantly deviate from the targeted leverage and, in so doing, generate wipeout losses. In fact, the data show that many 3X leveraged ETFs have performed poorly over the long term in the period of their existence. However, there are some significant exceptions. The 3X leveraged Nasdaq ETF, TQQQ, for example has delivered a total return exceeding 10,000% (CAGR of 54.4%) over the 10+ years of its existence, more than 13 times the total return of its underlying ETF (QQQ). Similar, but less impressive numbers have been achieved with triple leveraged ETFs that target the S&P 500 and the Dow Industrials.

These results, however, are accompanied by excessive volatility and very large maximum end-of-month (EOM) draw downs, in excess of 49% for TQQQ, and with maximum daily drawdown of almost 70%. Many retail investors would be unwilling to sustain such (paper) losses. Here we propose a strategy to mitigate these large draw downs while still retaining much of the upside performance of triple leveraging. We show that by simply establishing a portfolio consisting of an equal dollar amount of TQQQ and TMF (the triple leveraged ETF linked to the 20+ year treasury bond), and performing bimonthly rebalancing, a total return, after transaction costs, in excess of 5,800% (CAGR of 44.9%) would have been achieved over the 10+ years of TQQQ existence, with the maximum EOM draw down less than 25%.

Hello everyone. 

I'm pretty much a beginner with QuantConnect (just started to vaguely understand how to create and use a Dynamic Universe). I have read through this thread and just wanted to say it is awesome, I hope I can get to the level of detail and complexity that you lads are dealing in at some point. 

Peter Guenther, is the most recent version of the algo you posted updated with the changes you made for “Implementation re Live Trading Recovery?” I tried having a look but in all honesty got a bit lost.

Also, is this version suitable for live trading. Alexandre Catarino gave a couple recommendations, including to use Resolution,Minute. Has anyone tried it out live and if so, does the algo make the trades we would expect it to make. I am happy to try this out myself but I fear I would not have the know-how to really grasp whether it was working or not, or suggest any changes.

Forgive my ignorance :)

No worries, JSO 2045, thanks for joining the discussion!

Regarding your questions:

(1) Does the algo have Live Trading recovery?
It does. The key variable for the in & out decision is the density of the number of signals saying out (see the black line discussed and illustrated in this post; the corresponding variable in the code is self.signal_dens). In Live Trading, this variable is saved every day that the code runs to the ObjectStore after the variable has been updated. See line 139 (if self.LiveMode: self.SaveData()) which calls the function SaveData that saves self.signal_dens. For the SaveData function, see lines 190-191 in the code. On the next day, if Live Trading, the code loads the saved variable from the ObjectStore before running its other daily checks and routines. See lines 98-102. So, if the code get interrupted, it would not matter much since it would pull the most recent critical information from the ObjectStore before it does anything else. This means that it has a recovery mechanism in place for live trading interruptions.

(2) Does the algo use Resolution.Minute?
It does. See line 27, where the variable res is defined which is then used for all equity tickers that are added (e.g. in line 31).

(3) How would I assess whether the algo performs the trades that it's supposed to perform?
One approach could be to run it live for a certain period of time and then run a backtest for the same period of time, comparing the trades.

Hi all, there's been some discussion on possibly using options with this algo.  I've modified the algo to also use options when out of market.  you can set self.useOptions to True or False to compare.  Thus far using put options as a hedge does not result in a better return, but I have not done any extensive testing to find more optimal parameters for using options.

Thoughts…
1. What is the optimal DTE for the options.  Perhaps we could look at the avg time out of the market for this, or maybe it makes more sense to use a short DTE and keep rolling while we are in out of market mode.
2. When is the best time to roll?  Right now I am just using 60DTE and rolling at 30.
3. What is the optimal weighting to devote to the options portion?  Currently whatever is not devoted to options is devoted to the normal out holding (TMF, TLT, etc).  I tested with 1%, but perhaps this is too low or too high.
4. How far out of the money should we be purchasing put options on the underlying?  I tested with 20%, but perhaps it's better to be closer to ATM.  I think further OTM is probably better for black swan protection as we can acquire more contracts for the money we are devoting to the options strat, but if the algo is truly good at taking us out of the market at optimal times, then being ATM might be better.
5. There are some very large drawdowns, due to having large gains in the options that are erased before the options are sold.  You will see this much more if you devote a larger weighting to the options hedge.  Currently the options are sold only if the algo goes back in the market, or we hit the time to exit, (it sells the options and then buys new options if the algo is still out of market).  It might be a good idea to create some sort of profit taking strategy to sell the options if they have increased by some amount, or to trigger a trailing stop after they have increased by some amount.

NOTE: do not use QQQ as the underlying for the options.  There is an issue with the prices starting in August 19, 2015.  This will make the algo look insanely profitable, but it's really that the options prices are off by a couple orders of magnitude. 

Peter Guenther For 1) That is pretty clever, thank you for explaining it for me. I'm going to have a look at all of it again and try to understand as much of the code as possible. I saw that there is another discussion going on currently about people taking the In and Out strategy over from Quantopian so i might give that a read as well to try catch some more info.

For 3) I think I am going to take your advice and try it live to see if it works (as well as hopefully making some decent returns as well). The only thing i am worried about is that there is some inflationary pressure at the moment which might not translate into great returns. 

Thanks for sharing this options implementation and structuring the discussion, Jon Bailey. Nice job. I also just quickly wanted to copy in Elsid Aliaj since I know that Elsid is looking for tail-risk hedging à la Taleb and your out-of-the-money put options implementation is a step into this direction. Of course, to fully implement the tail-risk hedging, the put options would need to be continuously held, i.e. during in and out regimes, but this is only a small modification. I reckon the smaller returns that we observe when holding the puts make sense, since tail-risk hedging is like an insurance and we usually need to be prepared to pay a premium for an insurance.

@peter-guenther , actually most of the code is from a tail risk hedging (Taleb) algo I was working on when I found this thread.  What I found is that keeping the hedge on 100% of the time is a pretty big drag on returns, and then wham, the market tanks and there are massive returns.  Basically the returns you get from the equity holdings are pretty much paying for the hedge and keeping stability of principal.  You are just waiting for a market crash to cash in.

I thought, if only I could better predict when a market crash/correction were to take place.  Of course this is a fools errand, but if I could come up with a way to know that it was mostly safe to be in the market without a hedge in place, I could dramatically increase the returns during the bull market years.  What I invision is some sort of confidence indicator, with three levels.  Above some level we are confident and the markets do no need to have any hedge in place.  Below that level but above the lowest level, we are still “in” the market and long equities, but with a tail risk hedge in place.  And then below some level of confidence, we are “out” of the market and moved into bonds/treasuries, along with the tail risk hedge.

At some point I plan to see if I can adapt the in_out algo to have this confidence indicator and if it even makes sense to do it, or perhaps it is just better to keep the tail risk hedge on all the time.  What I do see, is that there are some periods of significant drawdown while we are still “in”.  The “out” determination is not always timely.  However those may be the periods where the middle confidence level comes into play.

Great ideas, Jon Bailey!

Musing a bit about options how this could be operationalized: 
To specify the regime “in the market but with hedge” one could also use the percentile approach but with a larger alpha, e.g. 10 instead of 5 percent. This would mean that the hedge is put in place earlier (i.e. already for softer signs of stress) than the out decision is being made. For example, one could specify:
activate_hedge = returns_sample.iloc[-1] < np.nanpercentile(returns_sample, 10, axis=0)
and then activate the hedge if: activate_hedge[self.SIGNALS + self.pairlist].any()

In addition, one could try to use a broader set of signals for the “in with hedge” regime, e.g. including the Yen or Swiss Franc to identify safe haven moves, or additional markets to check for stress signs. I will have a look.

@Jon Bailey found two doomsday hedges on the internet with for OTM VIX puts. Just searched but didn’t found the address. the Setup was like this:

Assuming the VIX is around 15, you would sell calls on the VIX on 20 and than buy the double amount of call on around 25 or higher with the total sum earned and spend equals 0. I think they were 60 DTE. Nothing mention how to define level the first call options. Second level was calculated by double amount op options and sell/buy equals zerro. They should expire most of the time with the vix below the sold putts to make it a cost free hedge. The risk would be if they expire with a VIX between 20 and 25. This was setup every month and the options were hold until expiration date. the total risk, was 0,25% of capital hedged on each of this 4 sets. Totally 1% risk based on capital to hedge. (In that case the risk is 25-20= 5 x number of option)

An other concept I found was to just buy very far out of the money options on the VIX. They used VIX 100 calls. They bought 60 DTE and rolled around 21 DTE. They did not mentioned the amount needed to hedge. 
 

I am running the V8 version and noticed it recently switched to TLT and back in December it had switched to stocks just before the tanking of stocks. I know these might be exceptions but just trying to understand and see if anyone knows why?

😊

Sector rotation, first tapering event, and seasonality contributed to algorithm buying behavior and your results.

Seems to be getting whipsawed back and forth at inopportune times. As long as it's providing alpha it shouldn't matter. The question does stand though if it should move into cash and/or possibly commodities instead of bonds during times of fed funds rate increases. Currently the drawdown isn't much better than nasdaq's due to the increase in treasury yields. Should get pretty interesting this year and next as the tapering begins+rate increases.

This comment has proven to be spot on, Anthony B. Thanks for sharing / the early warning!

The strategy seems to fail in the 2022 regime where now 20y bond crashes together with the market. Then it looks like the strategy was overfit on previous regimes or the hypothesis that bond is a safe hedge does not hold up :)

Santa24 The main problem why the strategy didn't took that into account, is that it never “faced” an inflation-shock situation like the current one, where expected inflation is far lower than the realized one.

During these kind of situations, nothing other than commodities outperform the market.

If you would have been backtesting the strategy during the '70s (for instance) you would have spotted this. But free to believe the overfitting reason :P :) 

Hi all, newbie joining the thread here.

What'd the resources to read/learn on how to monitor and which metrics to keep an eye when having an algo trading live. For i.e., if I happened to have this algo running for the last couple years, what should I have looked to preventing it from trading in 2022.

If the questions is a bit off-topic in this thread I am happy to repost it in a proper thread.

By the way, very impressive work Peter Guenther!

Santa24, ingenue question here: what'd be the key pieces you look at to determine an algo is overfit or not? Just looking for learning on how to spot such things. I am coming from TradingView's Pine code, and I found myself in hot water recently due to overfitting my algos in there. I found QC while researching for this problem and I am liking a lot the platform so far.

Rafael Trevisan i am by no means an expert, but the issue I see with the in-out approach is that it does very few trades, holding positions many days and QC has only data since 2002. Now, as pointed out correctly in the discussions, the in-out strategy performs very well 2008-2021, but then takes heavy losses because the macro-economical environment in 2022 is fundementally different from 2000-2021. As Simone Pantaleoni  says: “the in-out has not seen an inflation-shock situation like the current one, where expected inflation is far lower than the realized one”. I can only think of the following remedies:

• backest and research from 1960 - 2002, do out of sample validation 2002-2020 :)
• add create macro-economic rule overlays to the in-out, for example, if (real_inflation - expected_inflation) > threshold, do NOT trade at all or do commodity mean reversion

One might theorize that after the inflation shock, the in-out may start to work well again :)

Rafael Trevisan IMO, this strategy works when US markets are growing and S&P500 grows as well. When markets are in decline it will not work. There is no way to tell if it will recover or not with technical analysis, because this is a political problem, not technical. If politicians will fix it somehow, it will start working again, if not, then no 🤷‍♂️

Rafael Trevisan The general rule of thumb is to backtest on ~70-80% of all of the data you have. Then validate the results out-of-sample on the remaining ~30-20%. If it performs poorly on the out-of-sample then the algorithm is overfitting. But that's not enough. You will also need to fully understand the ins-and-outs of why the algorithm works and what could cause it to fail in the future. e.g when going “out” of market the In-And-Out goes to only bonds assuming that bonds are uncorrelated to the rest of the market and is always a safe haven, but we can see recently due to the inflation rate shock that assumption cannot hold. 

Additionally I see that more and more people are interested into running this strategy ever since Quantopian shut down. But we will have to question how well this strategy will fare as more and more people are running it on scale, would Alpha in the future be exploited away or not? 

I dislike qc's only recent data availability. The free data available just happens to be within the biggest bull run in history. Judging strategy performance on this period is extreme overfitting. You could hold anything during this time and be profitable 

I can make a variety of strategies that perform well during this time, but I would never consider running live 

Eric Pine do you think it would it be viable to track inflation and not trade the in-out if inflation ≥ lets 6%? 

I was wondering, which professionals actually do trade the in-out live :)

self.INFLA="RATEINF/INFLATION_USA"

self.INFLA_VALUE=None

self.AddData(NasdaqDataLink,self.INFLA , Resolution.Daily)

# cuation: query inflation on the 15th every month for avoid forward looking bias

I've been warning about bonds equities correlations since quantopian days but I guess nobody wanted to listen, or just ignored it purposely. 

The way to make it semi better is add a moving average filter and a filter on the out part where it just goes into cash when rates are rising. Not sure if inflation rising means bond rates will always rise, as that is basically what you are trying to accomplish with that filter seems like no?

Overfit ... or over-fit?

As noted in this thread and in the In & Out Strategy thread, holding TLT (20+ year bonds) while being out did not work this time. Much of the work in this thread has focused on optimizing the in holdings. More work seems to be needed on the out holdings. A momentum-based selection sounds promising. The continued discussion in this thread should be able to specify a concrete approach at some point. 

Has the In & Out fail us?
If we say out is hard-wired as meaning holding TLT then the answer may be yes. At least currently we are not better off than if we had remained invested in the market.

However, I was going back to the first two lines I had written on Quantopian when I introduced the In & Out Strategy back then in 2020:

Intuitively, it might be possible to generate excess returns via cleverly timed entries and exits in and out of the equity market. This algo may be a first step toward developing a strategy that derives optimal moves in an out of the market on the basis of early indicators of equity market downturns.

It seems that the original intention of the In & Out was to create a market timer. Musing a bit more about this, the in & out strategies discussed in this thread appear to have three main characteristics/components:
1. The in holdings selection
2. The out holdings selection
3. The market timer property

For the in holdings selection, several approaches have been proposed in this thread. Regarding the out holdings, these are alternative non-equity assets. As noted above, more work is needed to optimize this component.

But how did the In & Out do as a market timer telling us when to avoid equities?
Actually not that bad. I have a version (the v8) running that told me on 26 Nov 2021 to get out of equities which I did. At first it didn’t look like the best idea since equities reached new highs in Dec, but then starting with the new year it increasingly looked like a great move. Now I am waiting for the signal to tell me to get back in. (To generate the In & Out signal, I am using an approach similar to what Matthew Wang has proposed in the other In & Out thread.)

Long story short: The out holdings selection has disappointed. However, I am actually impressed by the market timer property. After the discussions on overfitting, ‘it uses too many signals’, ‘it shouldn’t react to individual signals but wait for multiple signals to fire’, and ‘with four parameters I can fit an elephant, and with five I can make him wiggle his trunk’ etc., the relative precision of the market timer is remarkable to me.

Peter Guenther what is the latest version “In” based on? Is it still signals from sectors? Like GLD < SLV? ect. Or is it momentum based? 

Because if it's a simple sector < > sector, that's dependent on some correlation which might not hold in the future such as stocks bonds currently. 

Peter Guenther Saw an idea related to this issue on the 'KEI strategy thread which might be relevant to your comment as well Jack Pizza 

https://www.quantconnect.com/forum/discussion/11566/kei-based-strategy/p1

Instead of defaulting to TLT every time we want to get out of equities would it be perhaps a better idea to see the recent correlations of multiple potential hedges and see which is the lowest or at least which is non-positive. Or maybe just evenly divide what was previously the TLT order between a bunch of potential ones ‘BIL, SHV…' ?

Do forgive me if those are obviously incorrect/dumb I'm very much a beginner in this space :)

That sounds like a valid approach, JSO 2045. Todd described something similar in the In & Out thread. Would be interesting to see a backtest using this approach.

Jack Pizza, the majority of the signals determining the market timing are not directly about correlations. Instead it is about extreme moves/returns. For more details, see my earlier posts in the In & Out thread explaining the percentile-based approach. Of course, there will always be some ‘correlation’-type of underlying assumption, no question about that. Anyway, my point above is that these assumptions worked this time and that the current comments about the In & Out do not fully reflect this since they do not pay particular attention to the underlying three components outlined above. Your point is that the assumptions may not work next time. I do not know about that one and cannot, and will never be able to, prove you right or wrong about that statement. I reckon that you have to pick a strategy that you feel comfortable with and believe in. It may not be this one and that is absolutely fine.

Further to my post above

Has the In & Out failed us?
I have argued above that the market timer property worked reasonably well in the recent market environment. In the In & Out thread, I propose that the recent overfitting claims do not appear to stand on a solid footing. First, what is mainly ‘fitted’ in the In & Out is the market timer which is also the algo’s main purpose. Second, the recent under-performance is the result of the out holdings which do not seem to have been fitted much since they were largely neglected in the discussion. So, underfitting or lack of fitting instead of overfitting seems to be the issue with this component.

Attached is a chart to substantiate my point that the market timer has worked reasonably well. These are live trading return results from my Interactive Brokers account in which I use the market timer property of the In & Out to trade a selection of equities when I am in and alternative holdings when I am out. What now turned out to be quite useful to visually illustrate the performance of the market timer: I have set cash as the out holdings and only recently added bonds (20%) to the mix, which means that we generally see a flat line when the algo went out. I have been using the In & Out market timer for my trading since my first post on Quantopian in Oct 2020, so for almost two years now, having moved to the latest algo versions around about the same time that I have posted them in the In & Out thread. By no means this is meant to say that you should do the same or that the market timer will work in all future situations. However, it can provide a deeper insight into the different components that are at work in an in & out algo and underline the importance that we need to be clear as to which component’s performance we are referring to in our comments and claims.

Peter Guenther great post thanks! so it seems that in practice the IN holdings should be a portfolio mix of ETFs that create execess returns over the market. I assumed the remedy was to set the OUT holdings to Cash if the inflation is significantly rising. Do you have an additional portfolio selection logic for the IN holdings in place to create excess returns?

Appreciated, Santa24. Regarding the out holdings, it’s still on my list to formalize this a bit more and share an update. Just too short of time lately but hopefully at some point. This may sound more mysterious that it actually is: The logic for the in holdings I currently cannot publish due to an agreement. Again, maybe at some point. When the Alpha Market was still on, it was a bit easier to share without directly posting the code: I had an alpha there called the InOut G-Force which used the logic. It's a selection of stocks not ETFs. There might be a new chance when the revamped Alpha Market will go live. Of course, there are also alternative stock selection logics that have been developed in this thread.

Peter Guenther a momentum based approached for out 1,3,6,12 month on QLD, IEF, BIL works fairly well. With weights 12,4,2,1. 

It's been backtested almost 100 years in a paper Vigilant Asset Allocation and as an out works great, assuming you have proper in / out signals. 

Thanks for sharing, Jack Pizza, including the paper title. That does sounds sophisticated. Looking forward to play around with that idea and to test a few constellations.

Not as sophisticated as Jack Pizza's suggestion: I am currently experimenting with a simple switch for the out holdings from TLT to cash if TLT's return is negative.

During the recent TLT meltdown, the attached algo holds cash from the end of Jan onwards and can reduce the drawdown to about -15%. Still not a small drawdown. A stop loss and waiting period might be an interesting addition, although it would of course deviate from a plain momentum-based approach. Alternatively, one could try to get ahead of the bonds meltdown by predicting it through appropriate early signals.

The new bits in the attached algo:
- Line 34: lookback period for testing the TLT return
- Line 134: calling the function to test the return
- Lines 160-182: the actual function. A bit wordy in order to catch potential data issues

PS: Also consider Jack's suggestion regarding holding a basket of multiple alternative assets and using multiple weighted lookback periods.

Peter Guenther check the other in and out thread i posted a lot of stuff there, stop loss, moving average, and a backtest with a lot of momentum based code, but this looks good. 

I'll trying adding momentum soon.

Peter Guenther I've added momentum stuff to the algo stuck at self.trade take a look, you'd know better how to convert the arrays into dictionaries keys or whatever trade is doing.

I tried with straight up set holdings, but performance degraded so whatever trade is doing with the weights stuff, such as don't trade unless changes ect seems to be needed. 

Code is attached

Thanks for that, Jack Pizza, I will have a look.

I have also tried another idea. Backtest attached. 
For the out holdings, we do not consider TLT vs cash but TLT versus its inverse. Now, I wanted to use TBF (1 x inverse TLT) but ran into an error ("key not found" at some point) which I still have to figure out. So, the attached version uses TBT instead (the 2 x inverse TLT).

I still have to analyze the result in more detail but I thought I'd share directly so that others can have a look as well if interested.

Can probably backtest by continuing to use cash still just maybe if cash wins, you just short TLT. Would have to due a risk assessment on that inverse TLT fund, as they can blow up, like all the VIX OIL funds did. 

But that looks like a great idea

Good thinking, Jack Pizza. I tried using a short in TLT. In the attached backtest, I could only use a -0.5 weight for the short due to buying power issues. However, even then, the total return suffers and the drawdown goes up due to a substantial underperformance during 2008/9. So, it seems like we have to dismiss the short idea. Not a problem, back to the drawing board.

Hi to everyone, it's really an interesting thread; I would like to implement the version of the algorithm with the universe of stocks instead QQQ, can you suggest me the lasted code to start? In my opinion we could use relative momentum for the Out alternative instruments (to select instruments for example in a basket of bonds ETFs and commodities ETFs)

Welcome to the team, Lex Nox.

There might not be a simple answer to your question since there are different stock selection strategies that we have discussed in the thread, each with their own latest version 😊. I have tried to label the strategies in earlier posts: ValuationRockets (earlier: EarningsRockets), QualUp (Quality Companies in an Uptrend) and F-Score (Piotrosky F-score).

I think that you find the latest versions for most if not all of the strategies on page 2 of this thread. Hope this helps. Your idea sounds definitely interesting.