Early this summer, I wrote a post on Absolute Momentum, and how it could help you find stock that are trending. I've showed the results of the strategy, when applied to a 60/40 ETFs portfolio. I also provided an indicator which gives you the option to choose the assets to calculate absolute momentum.
In this post , I would like to test this strategy on the S&P 500 component, and see if we would get similar results as the 60/40 ETFs portfolio.
The strategy is pretty simple .
We'll run these rules on the last trading day of each month.
I only have data from 2006, giving us about 10 years of data for testing. I'm aware that we've been in a super bull market since 2009 , but feel free to take the rules and test them yourselves, if you have access to more data. To be fair , I'm removed Amazon & Apple from the list of stocks for this testing. Also, commissions and slippage are not included in this test, we just want to see if the strategy would work.
Starting Equity : $100,000
Max Position : 10
Test Period : 12/01/2006 till 11/28/2016
Return % : 479.67%
Return : $479,671.09
Max DD : - 25,42 %
Sharpe Ratio : 1.14
% Profitable : 54 %
The strategy seems to work. We avoided the turmoil of 2008 and 2009, and other period of volatility. We had return of 479 % , which is pretty impressive. However, the draw-down for this strategy is 25 % , which is above the pain threshold of most investors. Don't be impressed by the return of a strategy, always pick a strategy that works for YOU.
You can find a copy of all the trades here. Starting next year, I'll start publishing a newsletter featuring updates of this and other strategies.