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:
- Long-only: Price minus the 200-day ma. Buy: C-MA(200) > 0 Sell: C-MA(200) < 0
- Long-Short: Price minus the 200-day ma. Buy: C-MA(200) > 0 Short: C-MA(200) <0
- Long-only: 50-day ma minus the 200-day ma. Buy: MA(50)-MA(200) > 0 Sell: MA(50)-MA(200) < 0
- 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:
Performance is summarized on the table below:
|Parameter||Rule 1||Rule 2||Rule 3||Rule 4|
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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