INDIA 30 ORMI © – Entry and Exit

We have introduced some new changes to the India 30 to reduce drawdowns and signal noise. However, instead of focusing on exits we focused more on entry. We have introduced a new entry signal. First, every entry is reconfirmed after a few days. If the entry is still valid, only then we enter. This kind of reconfirmation reduces noise in entries, when the system generates a buy signal and closes it in a few days.
On the exit side we focused on removing negative outliers. There are occasions when worst performers fail to deliver. In all such cases we wanted to filter out components which fail to outperform and deliver absolute gains. Any running component that moves lower with a loss of 10% or move over a holding period of 10 or more days is kicked out.
Both these above changes reduced drawdowns and improved net performance. Reducing drawdowns has an advantage and disadvantage. The advantage is that we protect whatever we gain. However, there are a few disadvantages. First is that the holding period reduces. Now the average holding period has reduced to an average 45 days. Second, the average no of running stocks show more variability. So in the end tweaking the Index construction has a trade off. If we protect the gain, the index becomes more sensitive (active). If we keep it passive with 90 days holding (or more), we risk losing the profit generated by the Index. We will come to more passive indices at a later stage. As of now we will stick to capital and profit conservation.
Though in the previous version of the Index (29 May 2012) ORMI  © relatively outperformed the Sensex, ORMI witnessed a 38% drawdown (31 Jan 2008 till 12 Oct 2008) compared to a -62% fall in the Nifty (31 Jan 2008 till 8 Aug 2009). Though on one side we should be happy with relative outperformance vs. benchmark, but on the other side any new investor investing in the ORMI starting Jan 2008 had to wait 73 weeks for recovery. In such a case, a smaller drawdown like 15% would be preferable to 38%. With the new changes the ORMI © India 30 fell 15% from 16 May 2008 till 09 Jan 2009. This took 34 weeks. The desired result was achieved not only on a historical basis, but also currently from Nov 2010 highs, where India 30 ORMI © has just fallen 4% compared to a fall of 17% on the Sensex. And before we forget to mention, the India ORMI © is up 5 .14 times compared to 1.6 times gain in Sensex (2006 onwards).
In the latest ALPHA we have published the running signals for the India 30 ORMI ©.
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Jiseki Interpretation. Signals are interpreted as crossovers between various Jiseki Cycles. All three Jiseki cycles (Jiseki 1,2 and 3) depict different time frames. Example: An asset is ranked above 80 percentile and all the three Jiseki cycles are pointing lower, this suggests a running SHORT SIGNAL. Our Jiseki Indices use different kind of exits based on price and Jiseki Cycles. We have color coded the (Jiseki 1>Jiseki 2) SHORT zones with brown sandy (burlywood) and grey (Jiseki 1>Jiseki2) for LONG SIGNALS.
Coverage India: CNX100, BSE500 traded stocks and Indian Indices.

Domnita Pascut is the founding member of Orpheus Capitals.  Her interest in charts and market patterns was an extension of her keen understanding of social mood and sentiment. How charts could say so much intrigued her. She worked on market patterns, economic research, cyclicality and economic history. It was her liking for history which helped her see the cyclical natures of markets and patterns. Domnita now spearheads the extreme reversion anlaytics developed at Orpheus. She uses Jiseki Performance cycles and combines them with various risk metrics to analyse markets and filter out trading signals.