SPY 10/100 Trend Following System – 4/19/13

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The market took a turn for the worse this week, logging big distribution on Monday, Wednesday, and Thursday. This negative action has begun to turn the 10 day moving average down as the index actually broke through the 50 day line. If the market continues in this direction, it shouldn’t be long before we get a negative signal and go short.

If the market does continue along this path and give me a short side entry signal, I would have to give up a good portion of the paper profits I would have made if I took the last up side entry signal. This is all part of the plan though, and it appears as though I would still be exiting a profitable position.

Backtesting The SPY 10/100 System

Since I do not yet have the software capabilities to backtest this system, Woodshedder from iBankCoin volunteered to help me out. The results he came up with were very interesting. I highly recommend reading his breakdown of the strong and weak aspects of this system. His results show that the system would underperform simply buying and holding SPY over the long term, but would do so with smaller drawdowns.

While this does not appear to be a good system from a performance standpoint, it does appear to be a good system from a risk of ruin standpoint. This got me wondering what I could do to tweak different aspects of the system in order to increase performance without losing the safety. Since I don’t have the ability to backtest for myself, I will have to keep monitoring the system as-is for now. I hope to begin learning a software package soon.