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Timing FT Cloud Strategies

Time strategies to minimize drawdowns

Green = Quarterly Trading with timing;
Red = Quarterly trading with no timing;
Grey = S&P 500
1/28/04-1/28/14

Today we released a new feature in FT Cloud version 1.6.0.10: Drawdown Minimizer

FT Cloud modeling produces strategies with good risk-adjusted returns. Now, the Drawdown Minimizer adds safety and consistency.

Here’s a good example:

Quarterly Trading – Past Three Years

A number of FT Cloud users have developed quarterly trading strategies that works well and require very little trading. The chart below is the “VG-9” family, traded quarterly.

Three year - no timing

Red = Quarterly Cloud with no timing;
Grey = VFINX – Vanguard S&P 500
1/28/2011 – 1/28/14

Red Parameters

We see that over the past three years, its been an excellent strategy. We’ve got annualized returns of 19.8% for FT Cloud vs a 14.4% for VFINX over the three year period. And, that’s with a fraction of the volatility. The FT Cloud strategy posted a 3% standard deviation and a 1.89 ulcer index, vs VFINX coming in at 4.8% standard deviation and 4.9 ulcer index.

10 Year Look

Look at a 10 year period. The the quarterly trading strategy had a very significant draw down when the market turned in 2008. In some markets, quarterly trading alone is not fast enough to move assets to safety.

secondtiming

Red = Quarterly Cloud with no timing;
Grey = VFINX – Vanguard S&P 500
1/28/2004 – 1/28/14

The quarterly trading strategy trades every 3 months and then trades us into the best assets in our family. Since FT Cloud strategies are 100% invested and all members of VG-9 family declined in value, the red line experienced a strong draw down. (Albeit more muted than VFINX with a max draw of 47% for FT Cloud vs 55% for VFINX. We still moved into the best funds of VG-9 on the way down)

Improve with Timing

Time strategies to minimize drawdowns

Green = Quarterly Trading with timing;
Red = Quarterly trading with no timing;
Grey = S&P 500
1/28/04-1/28/14

In the chart above the Minimizer’s green line removes the steep drawdown of the red line using parameters of 50 and 200. When the 50 day moving average is above the 200 day moving average, we own the red line. When the 50 day moving average is below the 200 day moving average, we move to cash. The gold vertical lines show the timing trade dates.

The green line posted a strong 9.38% annualized return less volitility and fewer trades(no quarterly trades from 7/22/08 – 9/8/09

In summary, the Minimizer’s simple timing strategy improves the FT Cloud asset allocation with less trading.

See below for the list of parameters used above.

Timing Parameters

Timing Parameters

Red and Green Parameters

Red and Green Parameters

Family = VG-9 NAESX, VFIIX, VFINX, VGENX, VGHCX, VGPMX, VUSTX, VWEHX, VWESX

 

 

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