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>From TASC:
TRADING SECTOR FUNDS USING STATISTICS
Editor,
The October 2004 article by John Twardy, "Trading Sector Funds Using
Statistics," piqued my interest, and the sidebar on determining a
trendline by least squares was very helpful. I do have a request for
a couple of clarifications.
The gain/risk index is to be computed for each sector fund for the
last 30 days. The next step is to "rank the funds according to this
index." Please explain how the ranking relates to 30 days of
gain/risk index computations. Is a 30-day average to be used? Also,
there is reference to the value of the "sum of the gain/risk index
values for all funds for any given day makes up the sector trend
index. This gives you the overall trend of the market, which is
helpful for this short-term analysis." How is this value
specifically used when selecting the highest-ranking fund?
Pete Bock
via email
John Twardy replies:
Only the last 15 days of data is used. The article should have
stated to "do this for each of the past 15 days," not 30 days,
although this really doesn't affect the results, as only the most
current 15 days of data is used.
The sector trend index is not used for selecting the highest-ranked
fund -- it just gives you a "feel" for the market trend.
MORE ON TRADING SECTOR FUNDS
Editor,
After struggling for the past few days unsuccessfully to replicate
the gain/risk index shown on page 84 of John Twardy's October 2004
article, "Trading Sector Funds Using Statistics," for FIDSX (6.2)
and FBMPX (18.7), I wondered how would be the best way to ask
questions that might help me to successfully replicate Twardy's
work. I thought the most direct way would be to send you my
spreadsheet [not shown--Editor], which I produced based on my
interpretation of the instructions you gave on page 83.
The attached spreadsheet has two tabs, one labeled FBMPX and the
other labeled FIDSX. I have reduced the dataset to only that data
which should be necessary to produce a gain/risk index result for
August 26, 2002.
Any help you can provide would be greatly appreciated.
Axel Gumeson
via email
John Twardy replies:
The discrepancy appears to be because you have used adjusted Nav
data instead of closing data -- that, and it appears that some of
your historical data has been corrected, which resulted in slight
differences in our calculations. Taking all this into account, your
spreadsheet now duplicates the results I get with the adjusted data.
---------------------------------------------------------------------
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METASTOCK CODE FOR TRADING SECTOR FUNDS
Editor,
I have been a long-time subscriber to Stocks & Commodities. I
especially enjoy the articles that discuss trading methods.
In the October 2004 article "Trading Sector Funds Using Statistics,"
I had a couple of questions for the author, John Twardy. First, I
wanted to better understand the logic behind the gain/risk ratio.
The way I understand it, the highest-performing 15-day sector with
the lowest standard deviation to a 15-day linear regression line is
the one to select. A high return with low risk -- that sounds very
good. But why 15 days? And could it be done on weekly data? What
kind of testing was done to end up with 15 days?
Second, I attempted to create a MetaStock formula, but I was not
able to fully understand the basis for the formula in the article.
Here is what I tried:
ROC(c,15.%)/(Sqrt(Var(Linearreg(c,15),15)))
Unfortunately, I was not able to get the same results as in the
article. I know that you sometimes get the software vendors to
submit code. Any help would be appreciated.
D.J. Vatalero
via email
John Twardy replies:
I looked at various time periods -- 30 days and 15 days -- to find a
system that would trade often enough to keep up with market trends
but not so frequently as to create seesaw trading. In my testing,
the 15-day average outperformed the 30-day average. Taking the 30-
day minimum holding period (for the Fidelity fund) and looking at
the performance over half the holding period helps to show the trend
that is hidden in the longer-term average.
Regarding MetaStock code, sorry, that's not something I can help
with.
--- In equismetastock@xxxxxxxxxxxxxxx, "ktakkenberg"
<c.a.takkenberg@xxx> wrote:
>
> HI, I am looking for a Metastock formula probably called The
Twardy
> Indicator?
> In October 2004 there was an article "Trading Sector Funds Using
> Statistics," by John Twardy, in Stocks & Commodities page 82.
> Normally Equis supplies the formula with the article.But not this
time.
> On the internet I found an email to S&C where some-one wrote to
have
> tried to make the correct formula but was in doubt if he/she did
so?
> The formula was:
>
> ROC(c,15,%)/(Sqrt(Var(Linearreg(c,15),15)))
> I would like to know if this is the right-one or if anyone knows
the
> correct "Twardy Indicator"?
>
> Thanks for helping me out!
>
> Kees Takkenberg
> The Netherlands.
>
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