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Ratio of the Short to Long-Term Moving Averages - ETF Trading System

by Tom Huggens, 3018 days ago
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Based on the different iShares ETFs Dow Jones industries, this trading system buys the ETF that is ranked number one based on the ratio between the small-term and long-term moving averages (trending up).

On each rebalance day, the strategy ranks all ETFs based on their moving averages ratio. It then buys the ETF with the highest rank and sells the current position (In case there is a change in the rank of the first ranked ETF).
The higher the ratio between the short-term MA and the long-term MA, the stronger the uptrend is and the lower the ratio, the stronger the downtrend.

The strategy is based on the same logic and formula than the one I have shared yesterday: Industry Rotation Strategy - iShares ETF Dow Jones Stocks.
The difference lies in the formula used to calculate the exchange traded funds ranks and in the fact that I have added a 10% trailing stop with a 20-bar re-entry restriction (Do not buy an ETF for the next 20 bars following the day it was sold because of a trailing stop).

The ETFs that were included in the trading system represent the following industries: Basic Materials Industry (IYM), Consumer Goods (IYK), Consumer Services (IYE), Energy (IYE), Financial (IYF), Health Care (IYH), Industrials (IYJ), Technology (IYW), Telecommunications (IYZ), and Utilities (IDU).

The backtest was conducted on price data for the period 2001-2011 and for the above ETF symbols:
Market Return (as measured by the Down Jones U.S. Index - IYY): 25%
Strategy Return: 194.11%
Annual Return: 11.39%
Maximum Drawdown: -15.74%
Profit Factor: 2.15
Percent Winners: 56.86%
Average Bars Held: 40


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Type: Trading System

Object ID: 991


Country:
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Market: ETF Market

Style:
Technical Analysis

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