MarketTrak Question/Comment Message


Posted By: Roy   Date: Sat Jan 5, 2008

Title: Is there hope?

Message:
  It appears the system has lost about 32% the last 4 months. It seems to have reverted back to losing money like it did in early '06 when you stopped forecasting then. Is there anything in the pipeline for improvement? Is there someway of showing in the trading model results chart the actual trading that took place rather than what the current model shows. For instance the current model shows it was short from 7/17 07 to 8/16 07 while the model being followed at that time was in cash. Also,whereas the current model is long thru most of 9/10 to 9/26 the model being used at that time was actually short having a substantial loss. Is there any model that has been profitable the last four months?
  Roy

Response:

Roy,

First, I want to respond to your 32% loss claim. I don't know how you came up with this number. It is not correct. Our model performance for the last 159 days is shown below:

Trading Model Performance
Buy and hold return -5.58 percent
Trading model return 7.33 percent
Days long 113
Days cash 27
Days short 19

This is the same table that appears on our forecast page today. Our return for 2007 is considerably more.

I believe the weak performance is due to shocks caused by the credit crisis. The sudden rise in oil prices can take partial blame. I know of no model that could have (or did) foreseen these. They had a major negative impact on stock prices. Because the model will make errors, we always set stops to limit our risk. I sometimes will buy puts instead of setting tight stops.

The trading chart on the forecast page shows the actual trades suggested by the current forecast model. The chart is produced by an application that reads the network outputs and uses the trading model rules to determine trading positions. I do not modify the charts.

I have a vigorous model research and development program. Model changes will be made when better ones are found. Version 16 is the latest model under development. It does show encouraging test results as you can see in the comparison chart on the forecast page. This version does a good job overall, particularly over the recent past, but it is not perfect. If it continues to outperform our current standard model, it will become the new standard. When I do the upgrade, previous results will be saved and available for review. The results of our previous model can be found here.

We keep finding models that are better than the ones before. There is hope that we will find one that meets your needs but you must remember that no model will be error free. Your trading strategy needs to account for this.

Rich

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