MarketTrak Question/Comment Message

Posted By: Gene   Date: Thu May 31, 2007

Title: Shorter forecast period

 Your forecast period is 15 days. Why not something shorter?

We have found that the forecast accuracy falls off rather quickly if the horizon is less than about 15 trading days. We think that the market is just too efficient on a short time scale. When we looked at a 20 day forecast, we found that the forecast model was more accurate than with the 15 day horizon; however, the trading return was less. We think that a 15 day forecast horizon is optimum for accuracy and return.

That said, you should note that the trading model has a 5 day lookback period. This means that even though the forecast model has a 15 day horizon, the trading model is basing the trading position on what the forecast model said 5 days ago. We are working on a new forecast model that still has a 15 day forecast horizon but the optimum lookback is just two days. More on this later.

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