You are going down a dark alley there my friend. I recommend you turn around as you have accurately diagnosed the problem. I think it best to simply understand the differences in lookback length and what that means for the system. Academically, anything between 3-12 months "works." And exactly none of us know what is going to work best in the future. It's a futile exercise. But here's what we do know:ochotona wrote: ↑Wed Feb 06, 2019 7:01 amMore fussing, and going back to Occam's Razor. The GEM with 4 6 8 10 12 month lookbacks, "normalized" (annualized) weights works great, but didn't catch December 2018. But to catch December 2018 you have to heavily-weight 4 months, which to me seems like over-tuning the model to solve just one problem, which might break something else.
1. The longer the MA or lookback, the longer the lag and the more draw down, when it happens, you are going to get
2. Longer terms yield fewer trades (corollary...and fewer taxable events)
3. Longer terms better exploit major market moves and are less prone to whipsaw (though, under the right conditions they can be just as bad as ST lookbacks. For example, times when the market action is right around the 200 day MA or one year lookback)
Now take the inverse of the above and that is what shorter terms provide.
One can take two approaches in implementation. Averaging various look backs and weighting the look back values, which at the end of the day puts one in the mid range of whatever you averaged with some smoothing and/or tilts the single computation to take on the characteristics of LT or ST lookbacks.
My personal approach is to take two distinct look backs (one ST and one LT) and trade 50% of the portfolio based on them separately. This way I know I'm going to get one that provides good diversification from the other with different characteristics. In a nice bull run, the LT is going to crush the ST. After the market has tubed, the ST is going to crush the LT. Averaging/weighting/segmenting are all valid approaches...and exactly none of us know which is going to to best going forward.
Now with regard to December...no momentum system is going to prevent that unless it is very short term in nature. Just plan on eating hard short term spikes down (or up). The hope with a LT system is that things like that are in the noise and you stay long through the recovery. Assuming the recovery continues the ST system if it exited will get back in much faster and enjoy some of the snap back. Point being, there is no perfection, only trade offs.