Saturday, May 26, 2012
A Tale of Two Strategies
The chart below shows the performance of ESCombo and Alligator since Jan 1, 2010. This performance is based on $30 slippage which is less than what I normally post on the website, so anyone making comparisons to that data may see some difference. About half of the period on the chart is post design, or out of sample. What is most striking is the recent divergence between the two systems with ESCombo shooting up and Alligator falling. Just by inspection, the advantage of trading these two systems together (ESGumbo) is quite clear, at least up until now. I can't predict what will happen, but a decrease in the divergence seems like a strong possibility. Neither the markets nor these systems move in a straight line. I certainly hope Alligator will correct up and ESCombo will just keep going, but that is putting hope over experience. The only word of caution I would offer is that moving from the cold system to the hot one most often leads to regrets.