Follow Up: Relative Strength addition to Percent Donchian Channel Method
A backtest of the relative strength suggestion made in the previous follow up article was backtested by Corey Rittenhouse on his new site: http://www.catallacticanalysis.com/. Corey has managed to create a streamlined and concise reporting system through his own programming platform. His work is accurate, and the reports are very detailed. Nice work Corey!
The backtest involved selecting the top 6 markets by 1-year relative strength (1-year price performance) over the past year or the worst 3 markets by 3-year relative strength (3-year price performance). Instead of taking all signals as they occured, you would simply take signals only from markets that were in the top 9 by this criteria. This means that you would be holding cash more frequently. Note that this is NOT the same as the proposed Relative Strength using Donchian Channels which essentially made every market a ratio to the S&P500 to track breakouts. It is also NOT the same as the previous post on RSM (relative strength by market). The results are very good on a risk-adjusted basis–superior to the original Percent Exposure Donchian Channel System. In the future, Corey will try to test some more of these Quick Take ideas so that readers have a better sense of whether it is worthwhile to pursue extensive testing or development on the topic.