Back-test of an Aggressive S&P 500 (SPX) Trading System
The aggressive SPX System was back tested during an 86-month period beginning in January 2000. This periodincludes years when the market trended up and years when the market trended down. The S&P back test switched between being LONG the SPX Index and being SHORT the SPX Index. For the test, trades were executed at the closing price for the day. The back test made use of leveraged beta 2 SPX tracking funds. The test assumed that the trades were taking place in a tax-sheltered account such as an IRA. The back test did not take into account transaction costs, which in my brokerage account would be $8 per transaction.
The aggressive system produced a 4212% gain compared to a Buy & Hold strategy, which produced a –4% loss. Assuming that $20,000 was invested, the gain was $822,400. In other words the system turned the $20,000 into $842,400 ($20,000 + $822,400) compared to the B&H approach, which turned $20,000 into $19,200. The system averaged 15 trades per year, with an average duration of 17 days and with an average gain per trade of 3.84%. The largest realized gain was 44.85% and the largest loss was –13.03%. The largest unrealized (paper) loss was –20.54%. The percent of the time the system was invested long was 53.4% and short 46.6% of the time. Sixty-eight percent (68%) of the trades were profitable. The compound annualized rate (CAR) of return was 69.11%. The system was profitable in all of the test years (100%).
This is an idealized test. It invested all available funds in every trade. It does not take into account taxes or fees. In practice one could follow this test procedure in a tax-sheltered account, except for the brokerage fees. It would be foolish, however, to do so given the earlier discussion about money management.
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