Wednesday, March 26, 2008

Calendar market timing model (Halloween indicator)

Here is a well-known strategy for timing the stock market: Sell in May and buy in November. (AKA "Sell in May and go away" & the Halloween indicator)

In their paper entitled "
The Halloween Indicator, 'Sell in May and Go Away': Another Puzzle", Ben Jacobsen and Sven Bouman document this pattern in 36 of 37 global markets studied. This is a very robust timing method that works well in most markets, although researchers are puzzled as to the reason.

Conservative investors could develop a strategy that would simply reduce and increase exposure to stocks via asset allocation in lieu of being 100% or 0% invested.

Novice traders might ask, "Well what happened this year?". The answer is that no strategy works all the time. Good strategies have been proven to work most of the time.

See also:
Quant Investor: Calendar Based Market Timing Model

Collective2 trading systems


Collective2 is an interesting website that offers subscription trading systems. These systems are often technical in nature. Caveat emptor - anyone can submit a system, so there are a lot of subpar systems on there. Since you don't know the rules of the system, they are black box trading systems. Many systems I have noticed are probably data mined, because you can look at the chart and watch it fail when it operates in real time.

That said, the website lets you find systems several different ways. Once you go to the website, take a look at the options under "Find a system". There are quite a few good systems out there. Even if you don't want to subscribe to one, you can read the descriptions to get ideas for your own trading strategy.