Tuesday, May 16, 2023

Dow Theory Update for May 16th: Does your trend following system have a real edge? (II)

 Does your trend-following system have a real edge? Easy to know. Test the short side against stock indexes. The S&P500 returned an average of 10.15% since 1957. So, making money going against such an upward drift is not easy. If your system has timing accuracy, it should be profitable when going short. The table below shows the key performance figures resulting from shorting the S&P500 with my Composite Trend Indicator (made of the Dow Theory and the Blay Timing Indicator). Key insights:

The Profit Factor (total profit/total loss) is a remarkable 4.3. During the period tested, we were short only 10.57% of the time with a CAGR of 2.41% (which is equivalent to 22.80% if we had been invested all the time). The maximum peak-to-trough drawdown is a well-contained -17.45% vs. ca. 55% for Buy and Hold, and the average short lasted only 47.72 days.

Your may find the first post of this saga HERE.

Sincerely,

Manuel Blay

Editor of thedowtheory.com


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