Consumers of this site may already be aware that my forecasts have been positive, neutral, or negative. Going forward, I intend to continue to make forecasts on the same ranges, but I’m tweaking the positive and negative thresholds and breaking the neutral category into mildly positive and mildly negative. More positive or negative forecasts moving from daily up to annual will impact the leverage that I use. For example, a positive daily forecast and a negative daily forecast (mild or not) would keep me out of the market. A positive daily forecast and a mildly positive weekly forecast would cause me to invest at a return factor of 1 e.g. SPY. A positive daily forecast and a positive weekly forecast would cause me to entertain increasing leverage to 2 or more contingent on longer range forecasts. These changes are more conservative than my earliest approach and most aggressive than my most recent approach.
Back testing synopsis: Back testing suggests an annualized return of 150% over roughly 6 decades. I am highly doubtful of that being remotely attainable, but beating the market period seems plausible, particularly as the biggest bets are based on the longer term (more reliable forecasts). Back testing suggests going with the market 32.0% of the time, betting against the market 22.9% of the time and staying out of the market 45.2%. Historically, long bets most typically involve a leverage of 3 (16.5%), while short bets most typically involve a leverage of -1 (10.3%).
Conserative Variant: There is a more conservative variant that I’m apply of never leveraging above 1 in my non-retirement shorter investment horizon accounts. In that case a declared factor of magnitude 2 or 3 actually means magnitude of 1, while a factor of magnitude 1 actually means sit on the sidelines. The back tested returns are a much more modest 38% annual return and it requires patience as money sits on the sidelines 65% of the time historically. On the upside, I suspect that much of that market outperformance is actually attainable, unlike with the more aggressive strategy. Just like with the market itself, the backtesting nets better result in the 20th century compared to the 21st century.