Objective research to aid investing decisions

Value Investing Strategy (Strategy Overview)

Allocations for March 2024 (Preliminary)

Momentum Investing Strategy (Strategy Overview)

Allocations for March 2024 (Preliminary)
1st ETF 2nd ETF 3rd ETF

Require a Subsequent Confirming Signal?

September 14, 2022 • Posted in Technical Trading

A subscriber asked about a tactic that requires a subsequent confirming signal before triggering a strategy action. To investigate we use the 10-month simple moving average (SMA10) as applied to the S&P 500 Index and exploited via SPDR S&P 500 (SPY) over the available history of SPY. Specifically, we compare performances of the following three strategies:

  1. SPY:SMA10 Baseline – buy (sell) SPY when the S&P 500 Index crosses above (below) its SMA10.
  2. SPY:SMA10 Confirmed – buy (sell) SPY when the S&P 500 Index crosses above (below) its SMA10 and holds the crossing action the next month (suppressing whipsaws).
  3. SPY:SMA10 Tranched – each month allocated half of funds to SPY:SMA10 Baseline and the other half to SPY:SMA10 Confirmed.

We assume that trades execute immediately at monthly closes coincident with signals (requiring slight anticipation of signals). We assume that cash earns the yield on 3-month U.S. Treasury bills and trading frictions for switching between SPY and cash are 0.1%. We focus on average return, standard deviation of returns, return/risk (average return divided by standard deviation of returns), compound annual growth rate (CAGR) and maximum drawdown (MaxDD), all based on monthly data. Using monthly S&P 500 Index closes since March 1992 and monthly dividend-adjusted closes for SPY since January 1993, both through August 2022, we find that: (more…)

Please or subscribe to continue reading...
Gain access to hundreds of premium articles, our momentum strategy, full RSS feeds, and more!  Learn more

Daily Email Updates