Three of them are meant for investment, and the other is meant for comparison only. The other 50% ($15,000) will be allocated to a slight variation of the strategy that I will refer to as the Tversky portion. Momentum can take many forms. Antonacci G. 2015, Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk  Dual Momentum is about selecting assets that have both historically outperformed and also themselves generated a positive return. 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). Gary is quite explicit that based on his research, the best application of Dual Momentum is the one presented in his book, or a similar one that focuses on equities, which have historically offered the highest risk premium. The modular approach to Dual Momentum is the one described in Antonacci (2012). Zero ETFs ranked higher than SHY – 100% funds allocated to SHY or Cash. If you want a hands-off approach, probably easiest is to code it in Zorro and connect to IB. Dual Momentum (GEM) strategy evaluates just three asset classes: U.S. stocks, international stocks, and cash using three different ETFs. This order was filled on the open at 122.97. In other words, if the return of the S&P500 is less than the return of short-term treasuries, we hold bonds regardless of the performance of foreign stocks. I have a folder marked “ITA Gems” with a Word document inside. 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. 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. Under the RED model, input: 2.1. The Dual Momentum approach would prevent us buying such assets. He also looked at the absolute momentum of an asset – that is, the momentum of the asset relative to itself – and found that by combining the two types of momentum, he could reap the rewards of relative momentum investing while vastly reducing the volatility of the approach. Robot Wealth members have access to the complete research environment for reproducing and experimenting with this Dual Momentum Sector Rotation strategy. There is a lot more to Gary’s book than the results I’m showing here, including detailed discussions around the existing momentum literature, the basis for momentum (it’s always nice to have a tangible reason for an anomaly to exist before committing capital to it) and suggestions for other Dual Momentum implementations. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum.. Antonacci’s book, Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk, also details Dual Momentum as a total portfolio strategy. My implementation is more of a “global macro sector rotation”. The results below are for a Dual Momentum Sector Rotation for the following sectors: And the results using a 6-month formation period: No doubt you can see why I prefer this approach over the modular one! This portfolio allocation system is based on a paper by Gary Antonacci. 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. That is, we look at the performance of individual assets compared only to themselves. I found your step by step explanation of REDA along with definitions to be very helpful. Readers please note that my implementations have some important differences from the approach that Gary describes in his book and on his website. Dual momentum has a trend following component that lags behind when a new bull market begins. 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. There are many ways to build a strategy that implements the Dual Momentum approach. Next: Previous: Performance. Did you consider using the “default” settings in the Main Menu where one might use the 60 and 100 trading days as the look-back periods? Dual Momentum generally allows an investor to capture a majority of the uptrend in the major equity indices (sometimes even outperforming) while significantly reducing drawdowns when the market tanks. 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. Among do-it-yourself tactical investors, Gary Antonacci’s Dual Momentum is the strategy we tend to see implemented the most. Seasonality Factor July 27, 2020 . If you look at Gary’s results here, you can see that sector rotation outperformed GEM only intermittently (including the last few years of the simulation), with GEM coming out well on top over time. Two particular forms of momentum can be fairly easily mimicked with ETFs: time series momentum and asset class momentum. Many ITA Wealth Management subscribers like to keep things simple. Thanks for the DUAL MOMENTUM SPREADSHEET. 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. The ETFs used were SPY/CWI and CSJ/HYG respectively. Robot Wealth members have access to the code for implementing these systems and a research framework for additional experimentation. The system makes approximately two trades per year and involves just a few major asset categories that are easily accessed with large ETFs or mutual funds. 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. With this in mind I am setting up a small new portfolio with three primary assets for consideration. 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. However, the sector rotation Gary describes on his website here is, I think, very different to my implementation in that it examines the individual sectors of the US market only. For many active investors and managers, the reward may not justify the risk. This should mean that the barbell part of my portfolio is equivalent to 25 % x 5 all-world and 75% in bonds. For example, if the whole market was going down, the best performer in such a bear market would have positive relative momentum, but it might have negative absolute momentum. Readers should certainly familiarize themselves with Gary’s FAQ page in order to get the full story, or better yet, read the book! VEU gapped up and the order has not yet been filled. Antonacci (2012) published an extremely simple yet highly effective extension to relative momentum. 1653-1678. Here, we note that we have a tie for #1 ranking (VTI, VEU) and a tie for 3rd (AGG, SHY). Compare the best performing ETF to the returns of BIL. I closely read all blogs and copy and paste, to my word document anything worth frequent study and review. The Dual Momentum approach would force us into the assets that had both gone up and outperformed their peers. The first step in applying Dual Momentum is to compare the assets of interest against one another. This might be a great entry point if prices move higher, but any significant move lower would almost certainly remove it from consideration since it would likely rank below SHY and disqualify it despite any Hi REDA classifications. I will update this post as appropriate. ETF issuers who have ETFs with exposure to High Momentum are ranked on certain investment-related metrics, including estimated revenue, 3-month fund flows, 3-month return, AUM, average ETF expenses and average dividend yields. Whither Fragility? […] moving into and out of various risk exposures based on some signal or forecast. In our experience, the precise implementation of Dua… 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. Here’s how I set up my parameters in the MENU Tab: Let’s have a look at our output (as of closing prices on March 15, 2017): In the above figure we note that ALL ETFs rank higher than SHY – the ETF that we use as our momentum filter. This is a test of the tactical asset allocation strategy “Accelerating Dual Momentum” (ADM) from EngineeredPortfolio.com. A trailing stop order of 80% is applied to the all-world ETF. Below are the results of an ETF-based version of the modular approach described in Antonacci (2012), as well as a sector-rotation approach. Book Review; Diversification; Dual Momentum; Factor Investing; Investment Principles; Momentum Applications; Momentum Facts; Momentum Research; Trend Following; Most Recent Posts. I’m not sure whether I would consider these as part of the “system” but they do offer me possible enter/don’t enter confirmatory indicators. Click on the image for more information. 50% ($15,000) of these funds will be allocated to the Kahneman portion of the portfolio as described above. Have you given much thought to this problem? Dual Momentum Investing. Note that I do not assume that all features of the SS necessarily need to be used but I have tried to outline some of the options. What would be the downside of this kind of approach? Rank By = Return 2.5. 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. It will even have a dual personality . A good question to ask now would be “how robust is the strategy to changes in the parameter space?”. How do you connect it with the broker?, is there a way to do so from R? Best Ways to Use Momentum October 27, 2020. Next, we look at the absolute momentum of individual assets. There are also libraries you can use to connect to IB from R, eg https://cran.r-project.org/web/packages/IBrokers/vignettes/IBrokers.pdf . At this point I look at the Heikin-Ashi signals. ADM is an especially aggressive strategy that ties together multiple concepts from other TAA models that we track. Selecting assets that have both historically outperformed and also themselves generated a positive return, the. And takes positions in the community – register here user, check the posts missed... 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