by ilene - February 9th, 2010 10:00 pm
Courtesy of The Pragmatic Capitalist
The following comes to us courtesy of The Technical Take:
Figure 1 is a daily
Figure 1. S&P500/ daily/ Rydex Bullish and Leveraged v. Bearish and Leveraged
How bullish? Let’s design a study with the following rules:
1) entry signal: when the ratio of the Rydex bullish and leveraged assets to the Rydex bearish and leveraged assets is less than or equal to 1 and when the S&P500 is above its 200 day moving average
2) exit signal: when the ratio of the Rydex bullish and leveraged assets to the Rydex bearish and leveraged assets is greater than 1
4) commissions and slippage are not considered.
Of note, some of the buy and sell signals are shown in figure 1.
The strategy was back tested on the S&P500 with the first trade beginning on April 15, 2003. This strategy generated 529 S&P500 points; since April 15, 2003, buy and hold has generated 170 S&P500 points. There were 35 trades, and 31 of these were profitable. This strategy had a streak of 19 consecutive winning trades. Amazingly, this strategy was only in the market 7% of the time over the past 7 years. The average winning trade lasted 6 trading days with the average loser lasting 3 trading days. There was only one outlier trade which accounted for about 10% of the profits, and the profit factor (i.e., gross
The equity curve for the strategy is shown in figure 2.
Figure 2. Equity Curve