Approach

approach

In recent years, we’ve dedicated ourselves to the development of a model which appears to be quite good at predicting stock market swings. To be more specific: we have backtested our model over a period of more than 21 years (1995-2016). It was able to achieve an average annual return (AR) of over 200%. (Yes, that is not a typo: 200%). Even more interesting: the model does not score a negative AR in any of the years backtested.

Our model, which goes under the name of White Chapel, is based on psychology. It takes into consideration sentiment in stock markets at three levels:

  • market sentiment;
  • momentum of individual stocks;
  • short-term volatility.

In our model, we integrate these insights into a very powerful predictor. We use White Chapel to determine when to buy (or sell) stocks. We do not trade individual stocks, but (leveraged) ETFs/ETNs (short and long).

And this is not a theoretical exercise: we believe in our model and use it as a predictive tool for the actual trades we make ourselves.

An annual return of over 200%? Are you Dutch guys out of your mind?200-percent

Well, it is all a matter of perspective, really. In one of our backtests we implemented the following thought experiment: What if we were able to predict the direction of the Nasdaq correctly each and every trading day during a year?

Turns out this results in an annual return of more than 100,000%. If you take that figure as a starting point, an annual return of 200% is a fairly measly result. It is like answering two questions correctly when taking a 1000-question test.

In general, an annual return of 10% is considered not that bad at all. Our assumption was that with all knowledge mankind has gathered on stock markets over the last century, all stock data that have become freely available the last decade and the almost unlimited computing power we have at our disposal nowadays, it should be possible to do better than that 10%.

And we were right. In the latest iteration of our model, White Chapel is able to predict three out of four trades correctly. And with that, it reaches an average annual return of over 200%. To many that sounds like either unlikely or incredible, but in our approach it is quite logical.

Dynamic approach

We take an active approach to the development of our model. In its first version, by the end of 2014, it was a one layer model for the prediction of individual stock purchases with an average Annual Return of ‘just’ 35 percent. In the months after, the precursors to White Chapel developed into multi-layer models, which made use of ETFs based on the S&P 500 and the NASDAQ. The average Annual Return rose to more than 100 percent. Subsequently, White Chapel became an integrated multi-layer model that traded on the basis of VIX ETFs/ETNs. Thorough backtesting had shown that its average Annual Return exceeded 200 percent.

In its current iteration, White Chapel evolved into a sophisticated and well-balanced set of four different versions, each with its own return/risk profile. There is a version for the die hard thrill-seekers who can take a financial knock (Danny Daredevil), one for the more risk averse (Adventurous Anny), and two for the cautious minimalist investors (Solid Suzy and Lazy Larry). For a more in-depth explanation of their differences, see our Versions page, and the respective page for each model.

As long as new brainwaves keep coming, we keep the development of White Chapel going. Follow our daily blog posts, and/or subscribe to our newsletter, to keep up to date with new versions of our model.

white chapelWhite Chapel?

These Dutch Guys prefer to have their meetings outdoors. During one of their talk-as-you-walk-get-togethers they came across a lovely little white chapel. They entered the chapel to have a look. This visit to the white chapel must have enlightened them, because it was only 24 hours later that one of These Dutch Guys got a groundbreaking idea which improved the results of their model in backtests dramatically. To honor this remarkable event, they decided to name the newest iteration of their model after the white chapel.