r/letfs
Simple 200 SMA + Regime filter
Over the last few years, I’ve been trying to create a modified version of a long-term leveraged strategy using a 200-day SMA filter.
- Over the last few years, I’ve been trying to create a modified version of a long-term leveraged strategy using a 200-day SMA filter.
- * incorrect leveraged ETF data
- * whether the 200-day SMA signal is calculated correctly
Over the last few years, I’ve been trying to create a modified version of a long-term leveraged strategy using a 200-day SMA filter.
My goal was to build and backtest one very simple strategy that could survive major drawdown periods like 2000, 2008, and 2022.
I found a version that looks surprisingly good — honestly, almost too good to be true. That’s why I’d like to get some feedback and discussion.
What could be wrong with this backtest?
What assumptions could fail in real life?
Is the backtest data likely to be accurate, or could there be an issue with the data/source?
I’m especially interested in potential problems like:
- look-ahead bias
- survivorship bias
- incorrect leveraged ETF data
- unrealistic rebalancing assumptions
- trading costs, spreads, or slippage
- taxes
- periods where leveraged products did not actually exist
- whether the 200-day SMA signal is calculated correctly
Any feedback would be appreciated.
I am using VIXSIM?L=1.5 instead of UVXY to get more backtest data.
It looks overfitted af. Also you cannot invest into VIX directly
And vxx vxz vixm vixy svol zvol…. :)
"honestly, almost too good to be true..."
all it requires is physical vix storage. Let me know if you get that solved.
I quite like the combo of the slow and fast trend signals for dip buying.
On the other hand:
\- That is a lot of trades per year so the simulation is probably quite sensitive to trading costs and slippage?
\- Adding a 1 day delay to the signals and rebalancing the momentum allocation monthly rather than daily, both of which are probably more realistic, changes the results quite a lot e.g. the longest drawdown increases to 7 years: https://testfol.io/tactical?s=c4boDDAkEIB
\- All in on gold I don't think is very "risk off" - its a bet on gold which may not work in the future? Maybe something like a golden butterfly, golden ratio or gold + bonds + managed future + maybe also money market would be better as a true risk off allocation? Personally I use golden butterfly but with intermediate bonds switched out for managed futures as my non-momentum risk-off allocation. Or if you wanted the option to go all in on gold as a risk off then it would probably be better to use a relative momentum strategy to choose between a few risk off assets rather than assuming gold will hold?
You can't invest in the vix index directly, there are long volatility ETFs but the simple ones slowly hemorrhage money, and the more complex are mutual funds that are generally quite obscure in how they work with unclear payoffs when vol spikes. I would get rid of this entirely.
You probably should look at earlier data using spysim instead of qqqsim to see if it still works. It's fine to run the strategy with qqq but we probably shouldn't expect it to overperform spy or even VT forever.
In my experience the 200 sma is a pretty robust one all things considered, if you play with the horizon (175-250 days for example) and tolerance bands you get pretty similar results. Just take the best one with a grain of salt.
I can't really comment on the RSI signal as I havent studied it, personally im a bit skeptical, but you should probably do the same thing playing with the thresholds and all to check. If your results are inconsistent it's not a good sign.
Lastly if your strategy switches allocations more than a few times a year it's not a good sign, you'll lose a lot of money in trading fees at best.
The VIX leg is the real killer, you can't actually hold the index, only stuff like UVXY/VIXY that bleeds over time, so any backtest "buying VIX" is printing returns that don't exist. I'd strip it out first and see what's actually left...
confettofetti's point is the other big one imo, put a 1 day delay on the signal and rebalance weekly or monthly instead of daily. In my experience that alone eats most of these dreamy CAGRs. If it still holds up after both of those, then maybe you've actually got something?
That cagr and calmar is insane even for leveraged strategies