Trend Following Strategy in S&P 500: (Meb Faber and Paul Tudor Jones Approach)
Go long the S&P 500 when the price crosses the 200-day moving average, and sell when it crosses below the 200-day average. This is probably not the most sensational strategy, to say the least. However, Faber’s article is a great read because of his “simple” ideas, yet very powerful.
We backtest the following trading rules:
We buy when the close is above the 200-day moving average, and sell when it crosses below. The logarithmic equity curve above has a max drawdown of 28%, reached in 2002, and the CAGR is 6.45% while buy & hold is 7% (the test is not adjusted for dividends). S&P 500 trends little in the short term, but in the long term, it trends upward.
We go long when the close crosses its ten-month moving average and sells when the close is below the ten-month average. The equity curve looks like the image shown below since 1960.
You can find more info about this trading strategy here:
https://www.quantifiedstrategies.com/a-simple-trend-following-system-on-the-sp-500/