A Rules-Based Momentum Strategy
A Rules-Based Momentum Strategy is a systematic approach to responding to shifts in market leadership without relying on predictions or short-term noise.
By following a consistent process, the strategy aims to keep portfolio decisions disciplined and repeatable and to take advantage of the momentum effect in the markets.
A Rules-Based Momentum Strategy for Changing Markets
We backtested the trading rules on the following ETFs:
SPY: US stocks
GLD: Gold
TLT: US long-term bonds
DBC: Commodities
From 2004, we get the following result (monthly bars):
Performance
No. of trades: 68
Average gain per trade: 9%
Win ratio: 54%
Profit Factor: 4
Annual returns (CAGR): 11.7%
Exposure/time in the market: 97%
Risk-adjusted return: 12% (CAGR divided by time spent in the market (0.97))
Max drawdown: -25%
Exposure is not 100% due to rebalancing.
Trading Rules
We have the full code for this strategy for TradingView, Python, Metatrader, Ninjatrader, Tradestation, and Amibroker on our website - Platinum/Annual membership:
We made the following trading rules:
