When we look at the Ranking sheet we notice that we do not see any values in the Absolute Acceleration  column – this is because we are only using a single momentum lookback period and therefore have no other momentum with which to make a comparison. I realize that could be good or bad. ITA should do a manual on this kind of thing. The selected assets are equally weighted. Have you given much thought to this problem? Navigate to FT Cloud+ >> Compare 2. These assets should be familiar to regular readers of this site and approximate the asset classes suggested by Gary Antonacci in his book on “Dual Momentum Investing”. Transaction costs and ETF distributions have not been included in these simulations, however would likely not have a significant impact on results given the typical holding period and trade frequency. Dual Momentum And finally we get to the strategy that is the basis of the book: dual momentum, combining the positive attributes of absolute and relative momentum. Does this pass the Grouping “rule”? There is lots of other useful content in the members’ area too, including a machine learning research framework, educational material for learning algorithmic trading, and an active and exclusive forum of like minded individuals. Recognize that this is 1 combination of possible outcomes for assets passing the absolute momentum test (ranked higher than SHY) and the only combination that will have us 100% invested in “risky” assets. It will even have a dual personality . We select the assets which have positive relative momentum for further analysis. Scott from Scott’s Investments posted an update for his Dual ETF Momentum Portfolio this week. Under the RED model, input: 2.1. […], […] Dual Momentum Review – Robot Wealth […]. Our results show that firm fundamental trends play an economically much more important role than previously thought. This order was filled on the open at 122.97. I have been following the rankings in these portfolio and nothing has changed over the past week – allocations remain as reported in the above post. This decision is based on the number of assets I wish to include in the portfolio and the number of “candidates” that are offered by the screening process. The first step in applying Dual Momentum is to compare the assets of interest against one another. The strategy was inspired by a paper written by … In this example I am looking at an asset with a Group 3 classification so I will almost always consider it for inclusion in any portfolio. Zero ETFs ranked higher than SHY – 100% funds allocated to SHY or Cash. Antonacci G. 2012, Risk Premia Harvesting through Dual Momentum There are many ways to build a strategy that implements the Dual Momentum approach. The results are also consistent with Gary’s finding that Dual Momentum tends to underperform during strong bull regimes or when the market rebounds, but thanks to its ability to weather bear markets, has outperformed in the long run. Scott's Investments provides a free "Dual ETF Momentum" spreadsheet which was originally created in February 2013. The Dual Momentum approach would force us into the assets that had both gone up and outperformed their peers. VTI has a strong (3) Recency classification since it has been ranked higher than SHY for the last 3 days. The Dual ETF Momentum spreadsheet also has four additional sheets using a dual momentum strategy with broker specific commission-free ETFs for TD Ameritrade … Family = “Dual Momentum” 2.4. In the first section, this article describes a Dual Momentum study over an iShares country etfs basket with a new attempt to improve this well-known investing style. They like to apply advanced quantitative methods or perform in-depth research into the fundamentals. Dual Momentum … Time Series Analysis: Fitting ARIMA/GARCH predictions profitable for FX? – in this case (small portfolio list), yes…. # to buy = 1 2.2. Although it is not absolutely necessary to look at the REDA expectancies to trade this system, it might be of interest to some members and offers a simple example to help me explain how these classifications might be interpreted/used. Since I believe that VTI, VEU and AGG will all have distribution payments next week (although Vanguard does seem to be a little delinquent in announcing the ex-date) I have just “done it” and bought into all positions in both portions of the portfolio. This is a simple example of how “diversification” might be achieved through the implementation of different strategies (although, in this case, not drastically different) rather than through the more common practice of diversification through asset allocation. That is, we look at the performance of individual assets compared only to themselves. Gary’s research shows that momentum works best when applied to geographically diversified equity indices. In this post I’ll describe some of the highlights from the book, including a description of Dual Momentum and Gary’s modular approach for exploiting it. The modular approach to Dual Momentum is the one described in Antonacci (2012). I will continue to watch the HA signals for possible additions to the VTI and VEU positions – meanwhile a little is still held in Cash. strategy from 1971 calculated with indexes, however in practice you can’t trade pure indexes and in fact Gary himself recommends to use ETFs to And that’s exactly what I’m going to do. VTI is ranked #1 (Positive Absolute Momentum (relative to SHY), best opportunity in terms of Relative Momentum (relative to all assets in our list); I can ignore or consider the REDA classifications; If I ignore them I move to the HA entry signals – both 2-day and 5-day signals are positive so I look for an entry; If I consider them then I look at the Group classification and establish a “rule”. I think he might have looked at something similar – but probably not exactly using these ETFs and/or rules – and I don’t remember a comparison. An example portfolio (taken to an extreme with 5x leveraging of the all-world ETF) : 50% Dual Momentum, 62.5% all-world, 37.5% Bonds. This article provided a description of Dual Momentum and presented results for two different implementations of Dual Momentum using ETFs. Robot Wealth members have access to the complete research environment for reproducing and experimenting with this Dual Momentum Sector Rotation strategy. Rebalance = Annual 2.8. We can see that over this period, Modular Dual Momentum resulted in returns that were comparable with the best performing component but with a fraction of the maximum drawdown. Before we go any further, I’ll explain what is meant by “Dual Momentum” and how it might be applied. I realize that this is a rather long, maybe complex post, on a simple portfolio, but I hope that the detailed explanation may help members better understand how the Workbook might be used both for this and other portfolios. Thank you for the time, effort and your expertise. We found that in general, the results of our approximately 10-year ETF-based simulations were in line with Gary’s much longer index-based simulations, although the latter better demonstrate the long-term outperformance of the Dual Momentum approach. How do you connect it with the broker?, is there a way to do so from R? While articulately drawing from a range of sources, from Shakespeare to Bacon and Einstein to Buffet (even Thomas Conrad’s 1970 book Hedgemanship: How to Make Money in Bear Markets, Bull Markets and Chicken Markets While Confounding Professional Money Managers and Attracting a Better Class of Women, which has got to be the greatest title in the history of trading books), Gary comes across as playful and slightly eccentric (which is wonderfully refreshing in a book about the markets). A good question to ask now would be “how robust is the strategy to changes in the parameter space?”. Non-scheduled portfolios may be reviewed. It holds U.S. or non-U.S. stock indices when stocks are strong and uses bonds as a safe harbor when stocks are weak. Correct? No spam or 3rd parties. Rnk Period = Quarter 2.7. Robot Wealth members have access to the code for implementing these systems and a research framework for additional experimentation. Consequently the REDA classification in the AA column will always be Lo (and we will see no assets with a Group 1 ranking – since this would require a Hi classification in the A column). We found that in general, the results of our approximately 10-year ETF-based simulations were in line with Gary’s much longer index-based simulations, although the latter better demonstrate the long-term outperformance of the Dual Momentum approach. Groups 1-3). The metric calculations are based on U.S.-listed High Momentum ETFs and every High Momentum ETF has one issuer. This doesn’t look like a great chart but, on a bounce, and with positive long term momentum might be a good buy. In his backtests back to 1974, he found that sector rotation outperformed the S&P500, but underperformed his GEM model. Of course, I really like doing this too, and these methods can be handsomely profitable. In the short backtest posted here, there is only one month when this makes a difference, but it may be more significant in the long term. Many ITA Wealth Management subscribers like to keep things simple. Thus, I am presently long a 33% allocation to VTI with 2 awaiting unfilled order. I have placed a buy stop order to purchase 46 shares at 108.00. It won’t shoot the lights out and make you rich overnight, but it has proven itself over time to be a robust way to outperform the market in the long term. The Dual Momentum approach would prevent us buying such assets. The other 50% ($15,000) will be allocated to a slight variation of the strategy that I will refer to as the Tversky portion. In our experience, the precise implementation of Dua… The ETFs used were SPY/CWI and CSJ/HYG respectively. Dear Hedgehunter I consider your review of this portfolio outstanding ! We are fortunate in this example to see 3 different combinations in the RED columns (A will always be Lo as explained above). We will soon be adding our suite of robustness testing tools to the members’ area to help answer this question. My implementation is more of a “global macro sector rotation”. Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk, Risk Premia Harvesting through Dual Momentum, Returns to Buying Winners and Selling Losers, Quantocracy's Daily Wrap for 04/28/2017 | Quantocracy, https://cran.r-project.org/web/packages/IBrokers/vignettes/IBrokers.pdf, Harvesting Risk Premia – Robot Wealth – Fate Forex, Errors Downloading Yahoo Finance Stock Price Data SOLVED! One concern that I have is survivorship bias in such a strategy. short-term U.S. Treasury bills) during periods of pervasive, negative trends. […] moving into and out of various risk exposures based on some signal or forecast. Contact me at itawealth@comcast.net if interested in a Lifetime Membership. Just calculate the portfolio every month and update accordingly. Best Ways to Use Momentum October 27, 2020. I’m thinking of making this move with all the DMM portfolios, particularly since the market is quite high and I want to preserve capital. VEU gapped up and the order has not yet been filled. Meanwhile AGG, with 2 re-enforcing Hi Classifications in the E and D columns is classified as Group 2 despite its lower momentum ranking (only 1 rank higher than SHY in the last 3 days). Click on the image for more information. Choose the ETF that has performed better. It is recommended to read the FAQ page on Gary’s website,or better yet, the book, to get the full story. But they take a huge amount of effort and usually a lot of frustration to get them right. This classification is based on an analysis of historical data where such relationships (“setups”) resulted in the expectancy of 21-day future returns lying in the lower 3 quartiles (i.e. However, due to each asset class only switching between risk-on and risk-off behavior, this only happens infrequently. Next: Previous: Performance. We can’t easily invest directly in an index, so in this examination of Dual Momentum, we used Exchange Traded Funds (ETFs) that track the indices of interest. I assure that most of this one will be pasted in that document for further study. Finally, here are the performance charts of a Modular Dual Momentum portfolio consisting of a 60-40 split between equities and bonds modules. Number of Offset Portfolios set to 1 – no consideration of past rankings (tranches); Single ROC (Momentum) lookback period of 252 Trading Days (12 months) with 100% weighting- same as Antonacci’s preferred setting; Maximum number of Assets to include in the portfolio set to 3 (i.e. The well-known Dual Momentum strategy is a simple, yet extreme, example of this approach, as it shifts the entire allocation between US […], […] time here? However, only AGG is presently showing 2 green HA candles so I have just added 12 more shares of AGG to the K-T portfolio. Model = Momentum 3. . The interesting thing to note is that the momentum scores for US and non-US were very close this month, 19.49% and 19.71% respectively. If you are a new user, check the posts you missed. Gary’s backtests using indices date back to 1974 and demonstrate a greater degree of out-performance than is evident across the relatively short (~10 years) backtest used here. Again, the methodology is the same – a “Dual” asset comparison, followed by a check of positive “Absolute Momentum” against T-Bills (SHY). Tx Painshrink, Thanks – and in recognition of all “shrinks” I will be (re)naming this portfolio in their honor – check for an update later in the day. As I mentioned, my preference is to go with the second Menu settings. Your coverage of REDA was welcomed even though the simple DMM, using a two strep analysi of Absolute and Relative strength, does not require its use. However, for smaller asset lists (such as this portfolio) I will widen the range of  acceptable “Group” classifications to Groups 1-4 or 1-5. Dual Momentum is about selecting assets that have both historically outperformed and also themselves generated a positive return. Dual Momentum Investing. Robot Wealth members have access to the code that was used to generate the backtests shown above, which forms part of a larger research environment that can be easily modified and extended, for example by varying the instruments used in each module, thinking up other modules, and varying strategy parameters like the formation period and the number of ETFs held in the sector rotation version. For the Tversky portion I change the MENU settings as shown below: Regular readers of this blog will recognize these momentum ranking parameters as being “standard” settings often used on this site. Note that it is also somewhat less aggressive than Antonacci’s “All-In” methodology in that SHY/Cash is used as a valid asset class for fund allocation. For this dual momentum option, % to sell MUST b… For this portfolio I will accept any candidates classified in Groups 1-5. 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