{"id":1920,"date":"2011-09-07T17:08:10","date_gmt":"2011-09-08T00:08:10","guid":{"rendered":"http:\/\/trendfindertrading.com\/blog\/?p=1920"},"modified":"2011-09-07T17:08:10","modified_gmt":"2011-09-08T00:08:10","slug":"pomo-qe1-qe2-impact-on-trading-results","status":"publish","type":"post","link":"http:\/\/trendfindertrading.com\/blog\/pomo-qe1-qe2-impact-on-trading-results\/","title":{"rendered":"POMO, QE1, QE2 impact on trading results"},"content":{"rendered":"

I have wondered if the reason the intraday systems performed poorly the first half of this year is because the market behavior was different because of QE2.\u00a0\u00a0With the large amount of Fed buying securities the market was no longer moving freely – it was artificially impacted by the Fed buying.\u00a0 So I took a look into this.\u00a0 This is not a scientific study but I do believe it provides some valuable insight into whether Trendfinder’s intraday systems are still performing as expected\u00a0or are “broken”.\u00a0 I noticed that since QE2 ended 6\/30\/11 that the markets seem to be moving freely again.\u00a0 I don’t know how to explain this other that it seems price is able to go where it is supposed to.\u00a0 This is purely my observation and I have no objective evidence.\u00a0\u00a0I did this study to look at actual evidence, not just my senses.<\/p>\n

My idea for how to research this came from posts about POMO activity in a great blog called Quantifiable Edges<\/a>.\u00a0 POMO stands for Permanent Open Market Operations.\u00a0 This is how the Fed buys or sells securities.\u00a0 From the Fed’s website, POMO is “Purchases or sales of securities on an outright basis that add or drain reserves and change the size of the System Open Market Account (SOMA) portfolio are amongst the tools used by the Federal Reserve to implement monetary policy.”\u00a0 For more info go here: http:\/\/www.newyorkfed.org\/markets\/pomo_landing.html<\/a><\/p>\n

To look at the impact POMO buying had during QE1 and QE2 I first looked at the chart in this Quantifiable Edges blog post<\/a>.\u00a0 In that chart you can clearly see the POMO buying areas during QE1 and QE2.\u00a0 I then looked at the Fed’s POMO database to determine the exact dates to use for the start\/stop dates of POMO buying.\u00a0 I determined these by seeing pretty clear demarcations of when buying increased\/decreased substantially.\u00a0 For QE1 the start date for POMO buying I am using is 3\/25\/09 and end date\u00a0is 10\/29\/09.\u00a0 For QE2 I am using a start date of 11\/15\/10 and end date of 6\/30\/11.<\/p>\n

The first set of charts are equity curves using results from implementing revisions to systems in a walk-forward fashion.\u00a0 This way the results match what was being traded at the time.<\/p>\n

First, here is the equity curve for the entire period:<\/p>\n

\"\"<\/a><\/p>\n

Next, here is the equity curve with no trading during QE1 and QE2 POMO buying:<\/p>\n

\"\"<\/a><\/p>\n

And finally, the consolidated equity curve with the QE1 and QE2 POMO buying periods removed:<\/p>\n

\"\"<\/a><\/p>\n

As you can see, the results during QE1 and QE2 POMO buying were much choppier.\u00a0 The end result (equity) is\u00a0a little higher\u00a0($25,990 which is\u00a0a 4.5% increase), but by not trading during the QE1 and QE2 POMO buying periods, the drawdowns were much less.\u00a0 So, are the systems broken?\u00a0 I say no.\u00a0 However they will probably underperform during periods of major Fed intervention.<\/p>\n

Now, as a comparison I looked at just using the current version of each system for the entire period.<\/p>\n

Equity curve for the entire period:<\/p>\n

\"\"<\/a><\/p>\n

Equity curve with no trading during QE1 and QE2 POMO buying:<\/p>\n

\"\"<\/a><\/p>\n

And\u00a0the consolidated equity curve with the QE1 and QE2 POMO buying periods removed:<\/p>\n

\"\"<\/a><\/p>\n

The results were similar, and the equity curves look even better in my opinion.<\/p>\n

CONCLUSION:\u00a0 My opinion is that the systems are performing as expected during typical markets, and will probably underperform during manipulated markets\u00a0(extremely large\u00a0Fed POMO buying).<\/p>\n","protected":false},"excerpt":{"rendered":"

I have wondered if the reason the intraday systems performed poorly the first half of this year is because the market behavior was different because of QE2.\u00a0\u00a0With the large amount of Fed buying securities the market was no longer moving freely – it was artificially impacted by the Fed buying.\u00a0 So I took a look […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"sfsi_plus_gutenberg_text_before_share":"","sfsi_plus_gutenberg_show_text_before_share":"","sfsi_plus_gutenberg_icon_type":"","sfsi_plus_gutenberg_icon_alignemt":"","sfsi_plus_gutenburg_max_per_row":""},"categories":[4],"tags":[],"_links":{"self":[{"href":"http:\/\/trendfindertrading.com\/blog\/wp-json\/wp\/v2\/posts\/1920"}],"collection":[{"href":"http:\/\/trendfindertrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/trendfindertrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/trendfindertrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/trendfindertrading.com\/blog\/wp-json\/wp\/v2\/comments?post=1920"}],"version-history":[{"count":30,"href":"http:\/\/trendfindertrading.com\/blog\/wp-json\/wp\/v2\/posts\/1920\/revisions"}],"predecessor-version":[{"id":1956,"href":"http:\/\/trendfindertrading.com\/blog\/wp-json\/wp\/v2\/posts\/1920\/revisions\/1956"}],"wp:attachment":[{"href":"http:\/\/trendfindertrading.com\/blog\/wp-json\/wp\/v2\/media?parent=1920"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/trendfindertrading.com\/blog\/wp-json\/wp\/v2\/categories?post=1920"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/trendfindertrading.com\/blog\/wp-json\/wp\/v2\/tags?post=1920"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}