Robotic line drawing

Here we are back in no man's land. The market is failing to make a clear move. One day up the next down, and so on. It leaves me with very little to say.

I am, however experimenting with a new charting tool called ProRealTime. I think you can get the end of day version free but I am using a version provided by IG Index which uses the IG trade prices in real time. One of its features is that it draws horizontal and diagonal support and resistance lines automatically. Here is the daily chart for the DOW. You can see that it has drawn the same higher resistance line that I tentatively put on the chart on Friday. It's the highest red diagonal line. I've included my old line in blue but I'm going to ditch that as an idea. You see how the drawing of these lines is subjective and evolving. Their weakness and their strength all rolled into one.

As I write he DJI seems to be showing some strength, following through from yesterday. We shall have to wait and see if it holds.

More Vector Vest research

When the sun did not shine I used my time to do more research on Vector Vest. It has this fabulous tool called the Simulator which allows you to test theories about how best to play the stock market. You will have heard that the past is no guide to the future but that is rubbish. The past is our only guide to the future. It is why we revere experience. The wise are people who have seen seen it all before and have learnt from what they have seen. The past is an imperfect guide but it is the ONLY thing we've got. Used wisely it can be very helpful indeed. 

The Simulator allows you to test an idea over any period of time you like. It provides the best guide to the future if you look to see how your idea fared over a range of earlier time periods. 

The simulations include three key elements:

• a timing list which defines whether the market is in an up phase, a down phase or is neutral. I have used my S&R timing list (look back a few posts for an explanation) and one of VV's timing lists known as the GLB/RT Kicker
• unisearches which are VV's share picking systems. I have picked ones that I have found to work well or that VV favours. I have not named the ones I've used but have called them a,b,c etc. suffice it to say I have chosen them carefully
• stop loss criteria which have taken me out of my positions. I have used one rather unusual stop loss system which ensured I did not hold positions for more than 4 weeks before replacing them in up down and neutral periods. In down or neutral periods I also ran a 5% trailing stop but bought nothing and kept cash realized until the next up period. I found that these stop systems worked well.

I picked a range of periods over which to test these systems:

• 18 Sept 2007 to 11 Mar 2013 This took us through from just before the sub-prime mortgage crash to the point where the market recovered to the level of the previous high
• 28 Dec 2007 to 10 March 2009. The period of the crash
• 28 Dec 2011 to 11 Mar 2013 A recent 15 month period
• 28 Dec 2012 to 27 June 2013 The most recent six moth period

The table below shows the results of the simulation runs as annual average rates of return (i.e. simple rates not compound). At the bottom of the table I have shown how the DJI and the VVC, VV's own proprietory index performed over comparable periods.

The simulations show that;

• on average all the simulations outperformed the market  many times over
• even when the market crashed the S&R system was able to make a profit and if the exceptional performance of unisearch A is excluded the system broke even.
• The Kicker system halved the potential loss in that crash period
• The S&R system outperformed the Kicker system by 2.4 times and was winner in all time periods except the last six month period. If the exceptional performance of Unisearch A is excluded the positions would have been reversed 
• Unisearch A on average generated almost twice the return of the next best search on both timing systems. However, it was a high risk strategy, on some occasions it only generated one share and so offered no diversification. It was not a system on which to stake the whole of one's portfolio
• Returns were fabulous. 
• Even if we ignore search A on average the S&R system yielded 41% pa and lost no money in the crash. 
• The Kicker timing system yielded an average 15% when A is excluded, also creditable. More importantly it caught up in the last two test periods and was only about 7% behind when A is excluded

Conclusion: My early quick and dirty tests to see if the S&R timing system works are endorsed by this latest round of testing. The GLB/RT Kicker also works well. There are 4 Unisearch systems that seem to be solid performers over a range of time periods. This approach works. Further research is necessary to endorse these results and to refine them.