Hello guys, I am researching strategies that work on a longer timeframe.(weeks to months) I currently came across tactical/strategic portfolio allocation techniques, which gain their edge by diversifing the portfolio. Any other methods/strategies that provide a long term edge?(Does stat arb work f.ex. long term?) Looking forward to your replies!
Have you tried "search" in upper right of the page and hunt through all the posts? Most traders who have spent years making their systems are not going to post their strategies on the forum and most others thrown into heap. If you want to stay in years, use weekly charts, design systems opposite you might think from risk backwards, you should study ending patterns first so you know when not to take signals. Diversifying if fine when you know how to spot trend, can you imagine if you selected ten stocks and they were all in down trend? If you can't define trend, risk, when not to take signals, when markets look to be ending, all the diversification in the world not going to help. Knowledge is the true edge.
Thanks for your long reply! Yep, I searched through the strategy forum. But my question does not go into the direction of finding the holy grade, but I am looking for a good starting point for long-term strategy creation. From your experience, can you recommend a particular thread/post? (might also be relevant/interesting to others...) Appreciate your reply!
On a long term timeframe, the best strategy is called "trend following". Diversification : maybe an edge 30 years ago, but today? Nope. Because people would diversify their tons of bad ideas rather than focus on few good ideas. Flexibility and timing provide long term edge. CM
They really don't "gain their edge" that way: they minimise their risk (actually at the cost of "diluting their edge") by diversifying the portfolio.
Evidence of highest excess returns ( edge ) in the equity space has been shown in academia using returns "factors". Combining these factors with tactical allocation strategy can lend itself to longer times frames and geometric compounding. http://tinyurl.com/znnqxdw - Don't quit your day job - Don't use leverage - Open a Roth IRA - Sometimes money is made by sitting in cash - Don't be a hostage to the markets - let the markets, profitability of the world's economies work for you
stocks offer a lot of unique opportunity/risk. not saying any ones is bad but for me id rather focus on timing. Several years ago i was frustrated with MF returns (my wife beating me up about doing something since I am "in the business"). Goal - outperform S&P with less risk but minimize time my assumptions/parameters 1. market rigged in the sense geared to always go up = need biased system 2. Biased algo to long only, no shorts 3. system/algo design based on cutting loss but allowing for 10-15% drop 4. Process to filter trades to cut risk BUT also dip returns, get stable returns/ miss major declines 5. 2X ETF to add pop not found in SPY The chart below shows how this approach has worked over the past 20 years I run this in retirement funds since i am full time algo trader
If you not trying to find the "Holy Grail", then flip a coin, or get a monkey throwing darts in a Bull market, it is all about trend, if you can't figure out trend, then you at a loss, these two books really all you ever need and I have bought over hundred books in my time of them through the years. Back testing helps with risk management to a degree. John Hill's books are very best in my opinion, more systems have been developed from his material than most, very knowledgeable trader and I believe he also manage funds along with his kids. Two of the best books around for Long term or short term, I reread them each year and always understand something better. https://www.amazon.com/o/ASIN/0471381357/151-7234047-1323246?SubscriptionId=0EMV44A9A5YT1RVDGZ82 Buy stocks that offer dividends and optionable, another area of study. Trading takes much study, best of luck to you.
Wow, where to start? Trend following is good, but results are volatile and you will, after a while, probably look to improve upon the strategy. In terms of equities, I like market timing with econometric models and sentiment. But, I'm partial since that's what I do and what my company is based on. I also feel strongly that an investment strategy should be systematic. That doesn't mean it has to be programmed into a computer, but it means that it could be. It means that you have devised a strategy so that no matter what the market does your response is predetermined. I can't stress this enough. Really, there's fundamental, technical and a combination of the two. The best use a combination. But, as you have read in this forum and elsewhere, it's critical to find a strategy in which you are compatible. I have traded strategies that I was just never comfortable with, no matter how good they were. When that happens, you just don't have the confidence to take or stay in the more difficult positions.