Blog, Strategies

Market Pulse: A robust market filter for rules-based strategies

Posted by Erik Martin Hansén

On Fridays, Market Pulse focuses on rule-based strategies. We use systematic models based on data, objective signals and risk diversification.

Today I will offer a method that can help you a lot.

Imagine you have a well-tested strategy. You run it live and then a bear market comes along and the strategy loses 40%. What went wrong? Nothing. The strategy worked exactly as it was supposed to.

The problem is that you were running a trend-following strategy in a falling market and it's kind of like sailing into a headwind and wondering why it's going slowly.

That's exactly the problem that a market filter solves. And that's what we're going to look at today.

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Posted by Erik Martin Hansén
After studying at Uppsala University, Erik Hansén has worked in the financial industry since 2007 at several brokerage firms and traded privately. In his role as an analyst, Erik has written highly regarded market letters.

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