A simple moving

average system that

still works!
I was playing with
Excel over the weekend
and thought I'd test a
simple strategy on a
selected market over a
long period of time.
The strategy I chose is
a very simple one: one
of the oldest and most
basic trend following
strategies:
Go long at the market if
the price closes above
50-SMA + ATR(10)
Go short at the market
if the price closes
below 50-SMA ATR(10)
Trail the stop on the 50SMA.
I then coded it in Excel
using EOD data of
SMH (semi-conductors
ETF) and results are
very surprising. With a
starting capital of
$10,000 and 2% risk
per trade, it has
returned a cumulative
total of 85% over 5.5
years, with the ending
capital being $18,500
(unless I have made a
silly mistake
somewhere). In the
intervening period, this
market has seen bull,
bear and sideways
phases.

See the spreadsheet

attached. You can enter
the following values:
- starting capital
- % risked per trade
- penetration factor (1
means the buy trigger is
50-SMA + ATR(10), 2
means 50-SMA +
2ATR(10) and so on).
Not earth shattering
results but not bad
either. Imagine what
this strategy could
return if diversified
across a range of noncorrelated futures
markets. Also
remember that this is an
extremely simple
version. For example, it
doesn't add positions
when a trade works.
You can also do a lot of
work on portfolio
allocation.
This just proves (to me
anyway) that one can
still get decent return
by following simple
(and apparently
obsolete) strategies, if
EOD trading is your
game. One can easily
programme this on
Tradestation and leave
it on autopilot.
Attached Files
SMH.zip (192.2
KB, 517 views)
Last edited by

OpenMind; Mar 19,

2006 at 5:51pm.

Mar 19, 2006, 5:48pm

#2

OpenMind

Running the same system on the data of SPY (S&P500

ETF), over 13 years the return is just over 300%. The drawdowns are
not vicious either.

129 Posts
Joined Jun 2005

Again, not spectacular but I'm impressed, given the simplicity of the
system and the potential.
Attached Files
SPY.zip (486.2 KB, 289 views)

Mar 19, 2006, 6:20pm

scotty_dog

32 Posts
Joined Apr 2004

#3
Quote:
Originally Posted by OpenMind
Running the same system on the data of SPY (S&P500 ETF), over
13 years the return is just over 300%. The drawdowns are not
vicious either.
Again, not spectacular but I'm impressed, given the simplicity of
the system and the potential.
Interesting, thanks for posting.
Some thoughts. I can't see that you factored in execution costs
(brokerage + slippage). That might drastically affect the end result.
Secondly, and I may be wrong here, I think ETFs are a poor choice of
investment vehicle to test a trend following strategy on. Firstly,
expensive / difficult to short. Secondly, if you are long, they are
wasting assets. i.e. ceteris paribus, they depreciate over time due to
management fees.

Mar 19, 2006, 6:30pm

#4

OpenMind

129 Posts
Joined Jun 2005

You are right. I didn't factor in costs.

Ideally I'd have liked to test it on historical futures data (which I will
do at some point soon), but I don't quite follow you logic against
ETFs. You can short ETFs through CFDs. There is no management
fee, they are traded just like individual shares. The price data of SPY
should be fairly close to the continuous contract data of ES or SP.

Mar 19, 2006, 10:27pm

Splitlink
9,191 Posts
Joined Nov 2001

#5
Quote:
Originally Posted by OpenMind
:
Go long at the market if the price closes above 50-SMA +
ATR(10)
Go short at the market if the price closes below 50-SMA ATR(10)
Trail the stop on the 50-SMA.
.
Was hoping someone would ask but I guess I am the dunce around
here!
What is ATR?
Split

Mar 19, 2006, 10:38pm

new_trader

#6
Quote:
Originally Posted by Splitlink
Was hoping someone would ask but I guess I am the dunce
around here!
What is ATR?

5,720 Posts

Joined Jan 2006

Split
Average Trading/True Range?
Last edited by new_trader; Mar 19, 2006 at 10:48pm.

Mar 19, 2006, 10:45pm

new_trader

#7
Quote:
Originally Posted by OpenMind
Running the same system on the data of SPY (S&P500 ETF), over
13 years the return is just over 300%. The drawdowns are not
vicious either.

5,720 Posts
Joined Jan 2006

Again, not spectacular but I'm impressed, given the simplicity of

the system and the potential.
Not bad, but well below what I want from a simple system.
"The Turtles became the most famous experiment in trading history
because over the next four years, they earned an average annual
compound rate of return of 80%."
http://www.originalturtles.org/system.htm

Source - http://www.trade2win.com/boards/trading-systems/19060-simple-moving-average-systemstill-works.html
Excel Sheet Path - D:\Market\3.e-books
Excel File Name - SMH