A strategy in the monthly timeframe trading only one asset has tracked CTA trend-following performance in the last 23 years. Read the article with a Trend-Following subscription.
There is a fundamental justification for a simple strategy tracking CTA trend-following returns in the last 23 years by trading just one asset in the monthly timeframe. The justification is based on the fact that on the highest level, there are four capital markets and their price action is driven by fundamentals. One of those assets is inextricably linked to the price action in at least two of those capital markets.
Below is the equity chart, drawdown profile, yearly and daily return, and comparison to SG CTA Trend Index performance.
The black line is the equity line of the strategy. The orange line is the performance of the SG CTA Trend Index. The backtest starts on January 3, 2000, and ends on January 25, 2022.
It may be seen that until August 2020, the strategy outperformed the SG CTA Trend index, but afterward, the latter managed to match its performance. Since October 2021, the strategy has generated only two trades. Below is a performance comparison table.
| SG CTA Trend Index | Strategy | |
| Annualized Return | 6.0% | 6.1% |
| Maximum Drawdown | -23.0% | -24.6% |
| Volatility | 12.9% | 12.6% |
| Sharpe Ratio | 0.46 | 0.49 |
| Number of Trades | – | 33 |
| Win Rate | – | 57.6% |
The performance data in the above table yield statistically indistinguishable results. The simple strategy is not data mined but based on a sound hypothesis about the price action of the asset used. The timeframe is monthly and the strategy takes only long positions. As of January 26, 2022, the strategy will generate a new position at the close of this month, provided there is no change in the market dynamics. Positions can also be established at the open of the following month after the signal with no change in performance.
Trading strategy rules and Robustness Analysis
The rules of this simple strategy are available with a Trend-Following subscription.
Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.
Charting and backtesting program: Amibroker. Data provider: Norgate Data
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