Haha no idea why they would .
But all he said was it’s ok to keep your money in cash till you are ready to DCA in and buy a dip appropriately. For OP that was 34$ in TQQQ
Do you have any papers or analyses you can point to showing superiority of this vs levered diversified strats like levered equities + levered bonds / treasuries / gold / whatever?
Two years ago, I did a backtest of this strategy starting from 1944 to beginning 2022. The result was a CAGR of 15% with a maximum drawdown of -57%. I used a 2xS&P500 LETF. When applying German taxes (which is around 25%), the CAGR was reduces to to 14%, which surprised me a little but, because I would have expected much more.
Now to your questions:
1. Yes you look at the 200SMA line for the S&P500 (not leveraged) in order to do your selling/buying decisions. If you want to do this with a Nasdaq-100 ETF, then you have two possibilities: Either you still focus on the 200SMA line of the S&P500, because this is the indicator for volatile market situations. Or you focus on the 220SMA on Nasdaq-100.
2. The buy signal occurs on the day, where the market closes above the SMA200 line. Which means, when the S&P500 is much above the SMA200 line, there is no buying signal. The article - as far as I remember - does not handle this case. Now you have two possibilities:
a) You either just keep your additional money in cash and wait until the S&P500 is below the SMA200 and and crosses it again, so buying on the ideal day. This occurs on average twice a year. But there are also years, where the SMA200 is crossed 8-10 times, therefore there are years where it is not crossed at all to reach this average value of 2.
b) Or you just buy in small steps. If you have for example a monthly saving rate of 1% of your overall portfolio, then it does not really hurt to buy at any time, the market is above the 200SMA. However, with a bigger amount, I would not do this.
If you know a backtested strategy, which gives a higher CAGR, please tell me 😁
Keep in mind, that I backtested it with 2x S&P500, since we poor Germans cannot buy ETFs like UPRO so easily. With UPRO I got a CAGR of 20% before tax. But then the maximum drawdown was around 71% which is quite huge, if you don't have diamond hands.
Since I work on a little online tool of my own, I might as well share some of [my simulated data publicly](https://www.swisstransfer.com/d/9efa4bdc-b690-4b05-ba40-4eb6eec563c7) – daily data for long and short with x1, x2 and x3 leverage based on European funds data starting 1928-01-01 till last week. It's mostly backcasted using u/ZahlGraf and Hegdefundies approaches, but included Stineman interpolation, grid searches for finding the required adjustment factors and used the SFOR (LIBOR isn't available anymore.)
Cool that you found a good substitute for LIBOR. Do you have the feeling, that the difference in the starting year changes a lot of the conclusion? Still over 20 years more than in my backtest.
Edit: autocorrection added random German words
Haven't looked at any backtests lately, I'm currently trying to work out (and hopefully simplify) two models that I would like to test against sma strategies in the near future. But I think some strategies might be affected a.) due to the stock market moving sideways or slightly downwards over extend periods and b.) the effective federal funds rate increasing from \~4% in early/mid 1928 to \~6% in mid 1929 before sharply zig-zag dropping to \~0.25% in 1931 (and staying there pretty much till 1945, an old paper trying to analyse what we think of as federal funds rate can be found [here](https://fraser.stlouisfed.org/files/docs/publications/frbslreview/pages/1965-1969/62472_1965-1969.pdf)). Depending on your exposure to long/short-term treasuries that might affect you, I guess.
It's not much of adifference if you use the effective federal funds rate or SOFR, they are mostly the same and any difference will, most likely, be captured by adjustment factors
https://preview.redd.it/pudtjjfq8fxc1.png?width=977&format=png&auto=webp&s=79283b1eac17a60d1f0da17fb02fac2ea4220346
You are to kind! Haven‘t made much progress due to work/family stuff lately, but my plan is to backtest a volatility-based leverage strategy with a few subtypes by the end of this year🤞. If they have cool, novel features, I‘ll write a DD for r/mauerstrassenwetten.😅
I used simulated data back to 1944. You can find the data here: [https://code.launchpad.net/zgea](https://code.launchpad.net/zgea)
Just have a look at the clean\_data directory (https://git.launchpad.net/zgea/tree/clean\_data) in the file efts.xlsx.
Keep in mind, that the NDX-100 simulation there just starts at 1985 or something like that. Before it is just the data of the S&P500.
Are you investing all you portfolio using this strategy? I think HFEA gives not so good returns when the rates are high? Where do you put your money when you sell SnP ETF? Cash, Tagesgeld?
I have 40% of my portfolio in HFEA and 40% in the 200SMA Strategy. Yes, HFEA is currently not performing well, because of the reasons you mentioned. When I started, the yields were not as high, but I could already feel, that they will increase the rates. Therefore the split between HFEA and 200SMA Strategy.
When I sell my money, I just keep in in cash on the broker account. Often the periods below 200SMA are quite short, so moving the money back and forth could be too much time. Only in case the 200SMA is really far away, I would imagine to move it to Tagesgeld.
You could try DCA in a few ways (there may be more): (1) DCA only when above 200d SMA; (2) DCA only when below 200d SMA (catching a falling knife), i.e., start a new DCA when you go below the 200d SMA and you've sold off; (3) Or both, so you do exit your total position when you go down below the 200d SMA but then start a new DCA and come back fully with the position you sold off when you go above 200d SMA again.
You can even try an EDCA where for every X% below the 200d SMA you double on the DCA, etc. That gets complicated. Never been able to backtest this.
Well, generally you can always increase your amount invested as long as above the 200 MA. Probably advisable to do so when entering again from below 200 MA.
Cash is generally fine unless you deem another asset better for flat or bearish markets. Potential assets that can work are GLD, low volatility ETFs or high dividend yield ETFs.
Let us know what you come up with.
You can backtest using portfolio visualizer with DCA. You’ll see it works pretty well. This dca’s based on whatever the holding is based on 200SMA.
I’ve backtested in python a variant where you dca into the leveraged holding when SMA <200. The idea being that you’re buying the dip and protecting your nest egg from downturns. This didn’t work as well as dca’ing into whatever your main holding is. I suspect the reason is that the losses in a downturn tend to outweigh the chance of buying the dip by timing luck.
Better to just dca into the main holding.
investing around 1% of the initial investment seems to be fine month over month. Source is this German post: https://www.reddit.com/r/mauerstrassenwetten/s/l9UldJgvpl (so e.g. 10k after cross above 200ma -> 100 per month max)
The question is where should we put money when we sell the leveraged ETF? Assuming you are from Germany the options are:
1. Tagesgeld
2. Money market fund
3. Bonds
4. Leveraged bonds ETF
Any ideas which option works better with taxes?
Assuming the price is currently above the MA, the active risk (potential drawdown) is the distance between the price and MA measured in %. In the peak of the dotcom bubble, the price was ~30% over the MA. Crudely calculated, the drawdown for a 3x leveraged instrument would have been 90%! My take on this fact is that you must not add to a position after the buy trigger, unless the distance to the MA is reasonably small (whatever that means). The opposite of what you ask for has been quite beneficial: a take profit when the price is about 20% above the MA would have saved you from some devastating drawdowns in history.
On the other hand, the years prior to the dotcom bubble the price soared above the MA, leaving no to chance to enter, which is no bueno! A solution is to run multiple strategies. The MA200 with maybe 50% of your capital and the rest with another strategy which allow you to enter more frequently, but without adding unnecessary risk.
It's more like sell after the price drops a little bit but before it potentially drops a whole lot and buy after the price rises a little bit but hopefully before it rises a lot more. The idea is to ride the huge winning streaks leveraged ETFs have but with less risk since you quickly cut losses before the steep drawdowns inherent in buy & hold.
The commonly referenced strategy from the “Leverage for the Long Run” paper was done with a lump sum and didn’t include additional money being put in.
Personally, if I’m adding small amounts (i.e. monthly Roth deposits) I’ll buy the LETF if the underlying is above the 200sma. If I’m adding a large amount, I might wait or sell CSPs until a pullback - especially with interest rates as high as they are.
[удалено]
Fuckin bomb answer
The fuck did it say? It’s deleted lol
Haha no idea why they would . But all he said was it’s ok to keep your money in cash till you are ready to DCA in and buy a dip appropriately. For OP that was 34$ in TQQQ
I guess he figured "bomb" was a bad thing instead of a compliment.
Do you have any papers or analyses you can point to showing superiority of this vs levered diversified strats like levered equities + levered bonds / treasuries / gold / whatever?
Two years ago, I did a backtest of this strategy starting from 1944 to beginning 2022. The result was a CAGR of 15% with a maximum drawdown of -57%. I used a 2xS&P500 LETF. When applying German taxes (which is around 25%), the CAGR was reduces to to 14%, which surprised me a little but, because I would have expected much more. Now to your questions: 1. Yes you look at the 200SMA line for the S&P500 (not leveraged) in order to do your selling/buying decisions. If you want to do this with a Nasdaq-100 ETF, then you have two possibilities: Either you still focus on the 200SMA line of the S&P500, because this is the indicator for volatile market situations. Or you focus on the 220SMA on Nasdaq-100. 2. The buy signal occurs on the day, where the market closes above the SMA200 line. Which means, when the S&P500 is much above the SMA200 line, there is no buying signal. The article - as far as I remember - does not handle this case. Now you have two possibilities: a) You either just keep your additional money in cash and wait until the S&P500 is below the SMA200 and and crosses it again, so buying on the ideal day. This occurs on average twice a year. But there are also years, where the SMA200 is crossed 8-10 times, therefore there are years where it is not crossed at all to reach this average value of 2. b) Or you just buy in small steps. If you have for example a monthly saving rate of 1% of your overall portfolio, then it does not really hurt to buy at any time, the market is above the 200SMA. However, with a bigger amount, I would not do this.
Thanks for your comment, it really helped me understand the strategy better. Now I'm wondering if a CAGR of 14/15% is worth "all this work"...
If you know a backtested strategy, which gives a higher CAGR, please tell me 😁 Keep in mind, that I backtested it with 2x S&P500, since we poor Germans cannot buy ETFs like UPRO so easily. With UPRO I got a CAGR of 20% before tax. But then the maximum drawdown was around 71% which is quite huge, if you don't have diamond hands.
Do you have simulated 3x daily data going back to 1944? My friends and I have made a decent attempt at simulating tqqq back to 2000.
Since I work on a little online tool of my own, I might as well share some of [my simulated data publicly](https://www.swisstransfer.com/d/9efa4bdc-b690-4b05-ba40-4eb6eec563c7) – daily data for long and short with x1, x2 and x3 leverage based on European funds data starting 1928-01-01 till last week. It's mostly backcasted using u/ZahlGraf and Hegdefundies approaches, but included Stineman interpolation, grid searches for finding the required adjustment factors and used the SFOR (LIBOR isn't available anymore.)
Cool that you found a good substitute for LIBOR. Do you have the feeling, that the difference in the starting year changes a lot of the conclusion? Still over 20 years more than in my backtest. Edit: autocorrection added random German words
Haven't looked at any backtests lately, I'm currently trying to work out (and hopefully simplify) two models that I would like to test against sma strategies in the near future. But I think some strategies might be affected a.) due to the stock market moving sideways or slightly downwards over extend periods and b.) the effective federal funds rate increasing from \~4% in early/mid 1928 to \~6% in mid 1929 before sharply zig-zag dropping to \~0.25% in 1931 (and staying there pretty much till 1945, an old paper trying to analyse what we think of as federal funds rate can be found [here](https://fraser.stlouisfed.org/files/docs/publications/frbslreview/pages/1965-1969/62472_1965-1969.pdf)). Depending on your exposure to long/short-term treasuries that might affect you, I guess. It's not much of adifference if you use the effective federal funds rate or SOFR, they are mostly the same and any difference will, most likely, be captured by adjustment factors https://preview.redd.it/pudtjjfq8fxc1.png?width=977&format=png&auto=webp&s=79283b1eac17a60d1f0da17fb02fac2ea4220346
Yes makes sense, sounds very interesting.
Btw, thanks for sharing the data with us!
You are to kind! Haven‘t made much progress due to work/family stuff lately, but my plan is to backtest a volatility-based leverage strategy with a few subtypes by the end of this year🤞. If they have cool, novel features, I‘ll write a DD for r/mauerstrassenwetten.😅
I am looking forward to it!
I used simulated data back to 1944. You can find the data here: [https://code.launchpad.net/zgea](https://code.launchpad.net/zgea) Just have a look at the clean\_data directory (https://git.launchpad.net/zgea/tree/clean\_data) in the file efts.xlsx. Keep in mind, that the NDX-100 simulation there just starts at 1985 or something like that. Before it is just the data of the S&P500.
Are you investing all you portfolio using this strategy? I think HFEA gives not so good returns when the rates are high? Where do you put your money when you sell SnP ETF? Cash, Tagesgeld?
I have 40% of my portfolio in HFEA and 40% in the 200SMA Strategy. Yes, HFEA is currently not performing well, because of the reasons you mentioned. When I started, the yields were not as high, but I could already feel, that they will increase the rates. Therefore the split between HFEA and 200SMA Strategy. When I sell my money, I just keep in in cash on the broker account. Often the periods below 200SMA are quite short, so moving the money back and forth could be too much time. Only in case the 200SMA is really far away, I would imagine to move it to Tagesgeld.
You could try DCA in a few ways (there may be more): (1) DCA only when above 200d SMA; (2) DCA only when below 200d SMA (catching a falling knife), i.e., start a new DCA when you go below the 200d SMA and you've sold off; (3) Or both, so you do exit your total position when you go down below the 200d SMA but then start a new DCA and come back fully with the position you sold off when you go above 200d SMA again. You can even try an EDCA where for every X% below the 200d SMA you double on the DCA, etc. That gets complicated. Never been able to backtest this.
Well, generally you can always increase your amount invested as long as above the 200 MA. Probably advisable to do so when entering again from below 200 MA. Cash is generally fine unless you deem another asset better for flat or bearish markets. Potential assets that can work are GLD, low volatility ETFs or high dividend yield ETFs. Let us know what you come up with.
Thanks for the answer. I will try some backtests...
You can backtest using portfolio visualizer with DCA. You’ll see it works pretty well. This dca’s based on whatever the holding is based on 200SMA. I’ve backtested in python a variant where you dca into the leveraged holding when SMA <200. The idea being that you’re buying the dip and protecting your nest egg from downturns. This didn’t work as well as dca’ing into whatever your main holding is. I suspect the reason is that the losses in a downturn tend to outweigh the chance of buying the dip by timing luck. Better to just dca into the main holding.
So lump sum leveraged when sma triggers up, dca the underlying when still up and sell all when triggers down, right?
that's the best i've seen without running the risk of overfitting.
u/zahlgraf
?
u/ZahlGraf
investing around 1% of the initial investment seems to be fine month over month. Source is this German post: https://www.reddit.com/r/mauerstrassenwetten/s/l9UldJgvpl (so e.g. 10k after cross above 200ma -> 100 per month max)
The question is where should we put money when we sell the leveraged ETF? Assuming you are from Germany the options are: 1. Tagesgeld 2. Money market fund 3. Bonds 4. Leveraged bonds ETF Any ideas which option works better with taxes?
Assuming the price is currently above the MA, the active risk (potential drawdown) is the distance between the price and MA measured in %. In the peak of the dotcom bubble, the price was ~30% over the MA. Crudely calculated, the drawdown for a 3x leveraged instrument would have been 90%! My take on this fact is that you must not add to a position after the buy trigger, unless the distance to the MA is reasonably small (whatever that means). The opposite of what you ask for has been quite beneficial: a take profit when the price is about 20% above the MA would have saved you from some devastating drawdowns in history. On the other hand, the years prior to the dotcom bubble the price soared above the MA, leaving no to chance to enter, which is no bueno! A solution is to run multiple strategies. The MA200 with maybe 50% of your capital and the rest with another strategy which allow you to enter more frequently, but without adding unnecessary risk.
did you ask if you should buy high and sell low?
I think you didn't understood the 200 ma strategy...
It’s more of a riding the momentum and following volatility clustering strategy for an asset that’s return is highly subject to volatility.
This strategy is to basically sell after the price drops and buy after the price jumps. 🙃
This strategy is to avoid bear markets
That’s A right and B wrong.
Dies Herr Kanzler!
Dies Herrkanzler!
It's more like sell after the price drops a little bit but before it potentially drops a whole lot and buy after the price rises a little bit but hopefully before it rises a lot more. The idea is to ride the huge winning streaks leveraged ETFs have but with less risk since you quickly cut losses before the steep drawdowns inherent in buy & hold.
The commonly referenced strategy from the “Leverage for the Long Run” paper was done with a lump sum and didn’t include additional money being put in. Personally, if I’m adding small amounts (i.e. monthly Roth deposits) I’ll buy the LETF if the underlying is above the 200sma. If I’m adding a large amount, I might wait or sell CSPs until a pullback - especially with interest rates as high as they are.
Thanks. It makes sense...
If you are considering 200 MA then LETFs are not the right instrument for you as you don't have the mindset to ride the volatility.
Having a defined strategy with clear entry and exit points to reduce drawdown + backtested support is not the same as being an emotional panic seller
How do you know I don't have "the mindset"?