DV2 Further Research

In this post I will test the DV2 with other indicators.

First I tested a simple DV2 system on SPY from 1/1/2000 – 7/30/2012 from Yahoo! Finance data. The rules were:

  • Buy/Cover: DV2 < 50
  • Sell/Short: DV2 > 50

The orders were taken at the day the signal was generated at the close price. The results were:

  • CAGR: 24.08
  • MDD: 42.67

All the tests after this use the same test dates, data source etc. as the test above.

DVI

The rules are:

  • Buy: DV2 < 50 & DVI < 50
  • Sell: DV2 > 50
  • Short: DV2 > 50 & DVI > 50
  • Cover: DV2 < 50

The results:

  • CAGR: 22.40%
  • MDD: 20.88%

These set of rules decrease the CAGR slightly yet decrease the MDD by over half.

A different variation of the rules:

  • Buy: DV2 < 50 & DVI < 50
  • Sell: DVI > 50
  • Short: DV2 > 50 & DVI > 50
  • Cover: DVI < 50

The results:

  • CAGR: 18.14%
  • MDD: 27.67%

Performance deteriorated versus the test above yet still beat the original on a risk/reward basis.

A different variation:

  • Buy/Cover: DV2 < 50 & DVI < 50
  • Sell/Short: DV2 > 50 & DVI > 50

The results:

  • CAGR: 15.73%
  • MDD: 27.67%

Performance deteriorated more.

A different variation:

  • Buy: DV2 < 50 & DVI < 50
  • Sell: DV2 > 50 | DVI > 50
  • Short: DV2 > 50 & DVI > 50
  • Cover: DV2 < 50 | DVI < 50

The results:

  • CAGR: 22.76%
  • MDD: 20.88%

A different variation:

  • Buy: DV2 < 50 | DVI < 50
  • Sell: DV2 > 50 | DVI > 50
  • Short: DV2 > 50 | DVI > 50
  • Cover: DV2 < 50 | DVI < 50

The results:

  • CAGR: 22.86%
  • MDD: 27.67%

A different variation:

  • Buy: DV2 < 50
  • Sell: DV2 > 50 | DVI > 50
  • Short: DV2 > 50
  • Cover: DV2 < 50 | DVI < 50

The results:

  • CAGR: 22.37%
  • MDD: 20.88%

IBS (or CRTDR)

I found this indicator with some background information at this QUSMA post. It seemed to be useful as an indicator on its own, and as a filter for other indicators. Just like in the QUSMA post, I use a 3-Day MA of the IBS.

The rules are:

  • Buy: DV2 < 50 & IBS < 50
  • Sell: DV2 > 50
  • Short: DV2 > 50 & IBS > 50
  • Cover: DV2 < 50

The results:

  • CAGR: 24.72%
  • MDD: 26.70%

A different variation of the rules:

  • Buy: DV2 < 50 & IBS < 50
  • Sell: IBS > 50
  • Short: DV2 > 50 & IBS > 50
  • Cover: IBS < 50

The results:

  • CAGR: 24.59%
  • MDD: 27.44%

A different variation:

  • Buy/Cover: DV2 < 50 & IBS < 50
  • Sell/Short: DV2 > 50 & IBS > 50

The results:

  • CAGR: 24.42%
  • MDD: 31.22%

A different variation:

  • Buy: DV2 < 50 & IBS < 50
  • Sell: DV2 > 50 | IBS > 50
  • Short: DV2 > 50 & IBS > 50
  • Cover: DV2 < 50 | IBS < 50

The results:

  • CAGR: 25.38%
  • MDD: 19.79%

A different variation:

  • Buy: DV2 < 50 | IBS < 50
  • Sell: DV2 > 50 | IBS > 50
  • Short: DV2 > 50 | IBS> 50
  • Cover: DV2 < 50 | IBS < 50

The results:

  • CAGR: 25.24%
  • MDD: 20.33%

A different variation:

  • Buy: DV2 < 50
  • Sell: DV2 > 50 | IBS > 50
  • Short: DV2 > 50
  • Cover: DV2 < 50 | IBS < 50

The results:

  • CAGR: 24.44%
  • MDD:  26.70%

RSI(2)

The rules are:

  • Buy: DV2 < 50 & RSI < 50
  • Sell: DV2 > 50
  • Short: DV2 > 50 & RSI > 50
  • Cover: DV2 < 50

The results:

  • CAGR: 21.92%
  • MDD: 35.00%

A different variation of the rules:

  • Buy: DV2 < 50 & IBS < 50
  • Sell: IBS > 50
  • Short: DV2 > 50 & IBS > 50
  • Cover: IBS < 50

The results:

  • CAGR: 19.28%
  • MDD: 28.34%

A different variation:

  • Buy/Cover: DV2 < 50 & IBS < 50
  • Sell/Short: DV2 > 50 & IBS > 50

The results:

  • CAGR: 20.48%
  • MDD: 33.70%

A different variation:

  • Buy: DV2 < 50 & IBS < 50
  • Sell: DV2 > 50 | IBS > 50
  • Short: DV2 > 50 & IBS > 50
  • Cover: DV2 < 50 | IBS < 50

The results:

  • CAGR: 20.93%
  • MDD: 30.02%

A different variation:

  • Buy: DV2 < 50 | IBS < 50
  • Sell: DV2 > 50 | IBS > 50
  • Short: DV2 > 50 | IBS> 50
  • Cover: DV2 < 50 | IBS < 50

The results:

  • CAGR: 23.02%
  • MDD: 30.13%

A different variation:

  • Buy: DV2 < 50
  • Sell: DV2 > 50 | IBS > 50
  • Short: DV2 > 50
  • Cover: DV2 < 50 | IBS < 50

The results:

  • CAGR: 21.88%
  • MDD:  35.01%

Conclusion:

While all the indicators improved the Risk/Reward versus the vanilla DV2 system, the best indicator seemed to be the IBS.

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