Interesting trading strategy

[sumantra]

I came across this Seeking Alpha article recently:

https://seekingalpha.com/article/422616 ... since-1928

The trading strategy is pretty simple - invest (and stay invested) in 2x or 3x leveraged general market ETFs like SSO, TQQQ etc. when the SPY is above the SMA 200, and shift to cash or TLT when the SPY is below the SMA 200.

According to the article, this strategy would have handily beat buying and holding the S&P since 1928.

Based on the article, I created a model using Portfolio Visualizer.

This model shows that for the 16 year period from June 2006 to September 2022 (June 2006 is when leveraged ETFs started for the first time), a model that invests 50% of the portfolio in SSO (2x SPY) and 50% in QLD (2x Nasdaq) when the SPY is above the SMA 200, and shifts to GLD when it is below the SMA 200, would have produced a CAGR of > 24%.

Interestingly, the best results are obtained when the Trading Frequency option is set to Bimonthly (i.e. you only check whether the SPY is above the SMA 200 at the end of every 2 months). You get a lower (but still a very decent 19%) CAGR if you execute the trade at signal (i.e. the moment the SPY is below or above the SMA 200) or weekly. So setting it to Bimonthly would just be a case of curve-fitting, but you still do get very good CAGRs no matter what trading frequency you choose.

Also, I chose GLD as the fall-back asset instead of Cash or TLT, because you seem to get slightly better CAGRs with that. Which makes sense given that gold often goes up when markets go down, and vice-versa.

One area where I can see that the trading strategy will probably fail is if the markets in the future have a prolonged choppy period where they keep oscillating above and below the SMA 200 without establishing any trends.

Other than this, can anyone comment on what you think of this trading strategy? Please read the entire Seeking Alpha article first though.

Thank you.

[Yodean]

One area where I can see that the trading strategy will probably fail is if the markets in the future have a prolonged choppy period where they keep oscillating above and below the SMA 200 without establishing any trends.

Strategy could work. But a "prolonged choppy period" is quite possible, based on my models - kind of my base case atm, really.