Confirming Parabolic Turning Points with a Quadratic Fit

Summary

This index timing method fits a quadratic function to a local segment of a historical price series, using either closing prices or the average of opening and closing prices. It treats the slope at the newest fitted point as an indicator of whether the series is weakening or turning. When the slope changes sign relative to the prior day, the strategy starts a confirmation count. After N days, it acts only if the latest slope still agrees with the direction indicated at the turning point: a positive signal buys and a negative signal sells. N is described as the strategy’s sole parameter.

The document reports a backtest over the prior ten years, during which the CSI 300’s return was near zero. It states that the timing method produced 111.13% excess return and a 27.95% maximum drawdown, and recommends pairing it with stock selection. These are reported results, not evidence of future performance; the text gives no further details about costs, implementation, benchmark calculation, or out-of-sample validation. Performance may depend on the fitting window and confirmation rule.

Key ideas

• The method fits a quadratic function to a local segment of historical prices.
• The slope at the newest fitted point serves as the timing indicator.
• A change in slope sign starts a confirmation count, and the strategy acts after N days if direction remains consistent.
• The strategy has one stated parameter, the confirmation delay N.
• The reported ten-year backtest showed excess return and maximum drawdown, but the document gives few validation details.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.