SPY 10/100 Trend Following System – 3-13-13

SPY - 3-13-13

As I have been asking around about building and testing systematic trend following systems, one piece of advice I received was to start following a simple trend following strategy like looking for crosses of the 10 and 100 day simple moving averages on SPY, which is an S&P 500 ETF.

In the preface to his book, Following The Trend, Andreas Clenow discusses how many of the most successful trend following firms in the world actually use some of the most simplistic systems to identify trends. With that understanding, it makes perfect sense that someone would advise me to begin with this basic, simple system where we buy when the 10 day moving average crosses above the 100 day moving average and go short when the 10 day moving average crosses below the 100 day moving average.

Obviously, I don’t know very much about backtesting this system just yet, but I think it is pretty obvious even to my that this system would have gotten us into SPY somewhere around December 6, 2012 at just below 142. SPY closed at 155.68 yesterday, which means we would be sitting on about a potential profit of almost 10%. Of course, we also would have lost money on the short side right before this.

In order to better track this, I am going to set up a paper trading account of $100,000 and will begin trading on the next signal from this system. In order to keep the results as simple to understand as possible, I set the trade commissions to an even $10 and disabled the use of margin. From here I will check SPY as close to daily as possible for signals and report on the progress, if any.