When Trading Advantages Die: Bank Leader/Laggard Strategy
Normally do not talk about strategies that do not work, but it is interesting (and I think it demonstrates an important point), so here goes …
I was inspired and quantified by the posterior edge of the Bank for the action and the market to see how the market has always played the next day relative strength / weakness of the bank stocks (represented by the index BKX) .
Here are the results from early 1993 (when he began BKX) until the end of 1999:
The red line represents the time, the S&P 500 tomorrow (after the close today), if the bank has exceeded the S&P 500 and now if the blue line below. This is a proof of concept, so these results are friction (ie, not taking into account transaction costs and slippage).
This is a very coherent. Remember, this is not a long-term strategy, which “appears” to work only because of market conditions at this time. This is a short-term changes in the positions on average once every 2.0 days.
Although I do not think that this observation was ready alone first time I used the concept as part of a broader strategy some.
But look what happened with our current strategy of ten years:
Ouch. Zero diagnosis.
Lessons learned?
Most of them we have spoken before. Markets are evolving. Business strategies must be flexible, or at least should be very sensitive to move to lower current and new strategies.
And something I know I have said explicitly (but I hope I have demonstrated through this blog), we must constantly seek new benefits that the market offers. Have always been there and (I believe) that will always be there … we just need to find a job.
Happy Trading.
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