Happy Monday folks, how did your Super Bowl Sunday go?

We’ve got a very short menu this week,

• Community Showcase

• Composer Developments

Lets dive right in, shall we?

We're back again with another showcase of a community created symphony!

This time, we're going much deeper than our previous two showcases. We're going to be covering all the bases, Stocks, Bonds, and Cash Equivalents with this one so strap in for a read.

Blend: Total Market Hedged (V 1.0) & Fund Surfing v2.0

At the top level, this symphony is a 50/50 weighted split of two separate symphonies set to trade at a 25% threshold. In practice, this means that when the two weighted blocks reach a weight of 75/25, a trade is triggered rebalancing them to 50/50.

One half, Total Market Hedged (which is itself a combination of two symphonies by Community Member and Architect BrianE#5796) is a fairly complex strategy that in one half, aims to hedge long bets in the Nasdaq and S&P500 depending on what parameters are triggered, with a combination of short-term positions in $UVXY if there has been a big run-up, or a combination of $UUP and $GLD (one at a time, decided by which has been less volatile in the last 30 days.) These individual blocks are triggered by a combination of Moving Average, Relative Strength Index, and short-term maximum Drawdown checks.

At the very top, this section sports a nifty "Black Swan Catcher" which is a name for a section of the symphony that is designed to take advantage of very specific types of Black Swan events. It won't catch all of them, but if it does, you're going to be hurting much less than someone who is just buying and holding $VTI.

On the other side of Total Market Hedges, the same approach is taken but without the use of leverage. It hedges large run-ups in $SPY and $QQQ with $UVXY and downturns with $BSV and a selector of shorting either the S&P500 or QQQ depending on market conditions. The result is one side being potentially very volatile due to the use of leverage, but smoothed out by the un-leveraged half.

The other half of this equation is Fund Surfing 2.0. A much simpler symphony, but no less robust and exciting was put together by Discord member MichaelB#1108, who also put the overall symphony together. It uses a couple very simple checks to determine market conditions at trade time, an RSI check of $UVXY to determine volatility being the first. In stable markets, the allocation goes into a rotating selection of both unleveraged and leveraged bonds, stocks, and specific sector ETF's.

If the market is determined to be too volatile to pick a direction safely, the next checks uses the size of recent drawdowns in bond ETF's TMV and TMF, bull and bear assets based off the 20-Year Bond market, to determine the next moves. If the bond market is trending up, allocate to bonds, easy-peasy. When they are neutral or down, this generally signals that stocks are neutral or up. With that in mind, we've got another basket of assets with various amounts of leverage, out of which the two lowest RSI values are bought. The basket contains a little bit of everything, Semiconductors, Tech Sector indices, Short Term bonds, the S&P500 and Nasdaq, Commodities and Agriculture. Whatever is up, Fund Surfing will catch it if the rise is sustained long enough.

Link to Discussion

Link to Strategy

Composer heard our concerns and implemented a change for us!

A couple weeks ago some intrepid and observant community members discovered that RSI values didn’t always match between live trading and backtests on Composer. RSI is a recursive indicator, which means that it requires data from a lookback window over a period of past trading days to calculate the its value. After some research it was discovered that the back test look-back period was dependent on the start date of the back test. For example, A 30 day back test would use a 30-day look-back and a 1 year back test would use a 1-year look-back when calculating RSI.

For the most part, the Composer back test RSI calculations closely matched other platforms such as TradingView and Yahoo Finance. The look-back period used in live-trading was the RSI period + 14 days. For example, a 3-day RSI would use 17 trading days for calculating the RSI and a 14-day RSI would use 28 trading days for the calculation. The effect of this math being very close in practice, but not truly identical, was that on rare occasions occasions, you’d see different trades listed in the back test than you would have traded in your real money account, particularly when an RSI trigger was close to a threshold. Shorter RSI windows (i.e. 3 days, 5 days, etc.) seemed to be less impacted while longer RSI’s were more impacted as they require a longer look-back for accuracy.

In response to our concerns about potential issues, Composer rolled out a change to both the live trading and back test calculations. They now use a longer 250 day look-back window for both live trading and backtesting. In the event a 250 day look-back is not possible (i.e. new ETFs/tickers), the look-back will use the first available date. Minor differences may occur due to a slight change in the calculation, so there could be an impact on live trading behavior if your symphonies utilize multiple short RSI windows, so this is worth monitoring in your own portfolio.

In summary, we discovered a potential issue with how Composer was calculating things, and they agreed that it was an issue! It’s a pleasant surprise in the world of FinTech startups when a company doesn’t try to gaslight you in to thinking something is fine so their agreement and cooperation on this can’t really be praised enough in my perspective.

That going to do it for this week, come see what we’re getting up to over at the Discord Community.

Please note that the information provided is for general informational purposes only and is not intended to be financial advice. The information provided is not a substitute for professional advice and should not be relied upon as such. Always consult a financial advisor before making any financial decisions. Additionally, The Hard Road staff and contributors may have a stake in the Securities, Cryptocurrencies, Platforms, and other assets that are mentioned in this article and others.