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Wilder delta phenomenon backtest11/15/2022 You can read more about trading strategy and system performance metrics. Worth noting is that the max drawdown is less than half of buy and hold (23.74 vs 56%). The 200-day moving average returns 8.89%, which is pretty decent. When we buy on strength and sell on weakness, in the second test in the table above, the best strategy is to use many days in the average. The 5-day moving average returns a CAGR of 7.35%, which is almost as good as buy and hold even though the time spent in the market is substantially lower. This can clearly be seen in the first test above for the 5-day moving average. In the long run, it is better to use trend-following strategies.īecause if we use a short moving average, the best strategy is to buy when stocks drop below the average and sell when it turns around and closes above the moving average (buy on weakness and sell on strength). The results from the backtests are pretty revealing: in the short run, the stock market shows tendencies to mean-reversion. The results of the first two backtests look like this: We use average gain per trade in percent to evaluate performance, not CAGR. Strategy 4: When the close of SPY crosses ABOVE the N-day moving average, we sell after N-days. Strategy 3: When the close of SPY crosses BELOW the N-day moving average, we sell after N-days.We sell when SPY’s closes BELOW the same average. Strategy 2: Opposite, when the close of SPY crosses ABOVE the N-day moving average, we buy SPY at the close.We sell when SPY’s closes ABOVE the same average. Strategy 1: When the close of SPY crosses BELOW the N-day moving average, we buy SPY at the close.We test on SPDR S&P 500 Trust ETF which has the ticker code SPY.Īll in all, we do four different backtests: We look at the most traded instrument in the world: the S&P 500. Now that you know the theory behind the smoothed moving average, it’s time to backtest and put the theory to the test:ĭoes a smoothed moving average strategy work? Can you develop profitable smoothed moving average strategies? Smoothed moving average strategy backtest and best settings
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