Year-to-Date Performance of Four Popular Trend-Following Strategies in SPY

Due to a quick reversal of prices to the upside after the recent death-cross, long/short strategies experience higher drawdown and lower absolute returns than long-only strategies. The best performer year-to-date is the long-only strategy based on price minus the 200-day moving average.

The four popular models are described below. C is the daily closing price:

  1. Long-only: Price minus the 200-day ma. Buy: C-MA(200) > 0 Sell: C-MA(200) < 0
  2. Long-Short: Price minus the 200-day ma. Buy: C-MA(200) > 0 Short: C-MA(200) <0
  3. Long-only: 50-day ma minus the 200-day ma. Buy: MA(50)-MA(200) > 0 Sell: MA(50)-MA(200) < 0
  4. Long-Short: 50-day ma minus the 200-day ma. Buy: MA(50)-MA(200) > 0 Short: MA(50)-MA(200) < 0

Note that all backtests below are based on $100K starting equity, fully invested at each position, with $0.01 commission per share per side.

The equity performance of these four systems is shown on the charts below. Click on the charts to enlarge:

SPY_20151026_MA1MA200_L

Long-only: Buy: C-MA(200) > 0 Sell: C-MA(200) < 0

SPY_20151026_MA1MA200_LS

Long-Short: Buy: C-MA(200) > 0 Short: C-MA(200) <0

SPY_20151026_MA50MA200_L

Long-only: Buy: MA(50)-MA(200) > 0 Sell: MA(5)-MA(200) < 0

SPY_20151026_MA50MA200_LS

Long-Short: Buy: MA(50)-MA(200) > 0 Short: MA(5)-MA(200) < 0

Performance is summarized on the table below:

Parameter Rule 1 Rule 2 Rule 3 Rule 4
Return -1.48% -4.75% -6.99% -13.23%
Max. DD -5.25% -10.00% -11.93% -16.80%

As it turns out, rule 1 has the best performance. This is the long-only rule that buys when C-MA(200) > 0 and sell when C-MA(200) < 0.

The performance of rule 1 will deteriorate if there is choppy price action about the 200-day moving average in the short-term.

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