DayOfTheWeek input, 12 years vs. 5 years. When is it profitable?

07Dec10

We were confident that the dayOfTheWeek ANN works. We had successful backtests earlier. Those showed that using only the dayOfTheWeek as input, we can achieve about 12% GAGR and 150-200% TR. For example, see the 10 members homogeneous ensemble in this posthere.
The D_stat/CAGR/TR numbers were 51.43%/11.97%/126%TR.

Therefore we were surprised when backtesting it for the last 4.5 years and tests gave the following result for 2 experiments:
D_stat: 51.34%, CAGR: 5.86%, TR: 0.29%
D_stat: 51.34%, CAGR: 0.74%, TR: -17.86%
0% TR. What happened?

Note that the FXE (EUR) ETF only appeared in the stock exchange in December 2005. Using 200 days lookback window, we start the backtest only in September 2006. That means we roughly backtests only the last 4.5 years.
This is the reason why we backtested the dayOfTheWeek input for only the last 4.5 years.

At first, we suspected we made a mistake somewhere, so we repeated the tests for the 12 years. We run 2 experiments (maxEpoch=200, ensembleMembers = 1) and we got this result:
D_stat: 51.87%, CAGR: 9.12%, TR: 86.46%
D_stat: 52.17%, CAGR: 13.27%, TR: 189.96%
So, the 12 years backtest is profitable indeed. Great. (neglect the variance now, it is because of using only 1 members)
And let’s see a chart for the last 4.5 years backtest:

and for the last 12 years backtest:

– We can be relieved that it is not a bug in the program. It is clearly visible in the 12 years backtest chart that the last 4.5 years (from the 12 years) were not profitable. We could expect about 0-40% TR, so our first 2 experiments results are validated.

– Unfortunately, it means that the dayOfTheWeek strategy didn’t work in the last 4.5 years. That is a good warning to us. Even if we have a good, sensible strategy that is profitable in 12 years, we can have a 5 years period when it does go nowhere. Emotionally, it is very difficult to play. After 5 years of going nowhere, we are very tempted to stop the strategy. Probably, we would have stopped the strategy even earlier.

Advertisements


No Responses Yet to “DayOfTheWeek input, 12 years vs. 5 years. When is it profitable?”

  1. Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: