Last Updated on 8 september, 2021 by Linus

Backtesting the SPY 10 / 100 System | System Trading with Woodshedder.

The simplest ideas are often some of the best. This is a mantra that should often be repeated by traders and investors. The simplest ideas persistently produce profits for long periods of time. I don’t know if this is because they are so simple that they are ignored or because they identify and exploit the structural architecture of markets.

With that thought in mind, I was recently reading a newer blog, Don’t Talk About Your Stocks. This gentleman wants to trade trend following systems but is relatively new to backtesting and system trading. I can identify. I have a keen memory of where I was and what I was doing when I first read Covel’s Trend FollowingSimilarly, deciding that I would no longer trade discretionary patterns but would instead follow quantifiable, rules based strategies, was a defining moment in my development as a trader, investor, and system designer/tester.

So the SPY 10/100 System is his first attempt at following a rule-based, quantifiable, trend following system. The only problem is that he can’t backtest it. That is a huge handicap, as it certainly stinks to have to paper trade a system for a few years before realizing that it would have worked or didn’t work. Because I like simple ideas and because I can absolutely identify with his desire, I am going to backtest it for him.

We shared a few tweets and I was able to discern the rules for the SPY 10/100 System.

The Rules:

  • Buy SPY at the next open after the 10 day simple moving average closes above the 100 day simple moving average
  • Sell SPY a the next open after the 10 day simple moving average closes beneath the 100 day simple moving average
  • SPY 10 100 Equity Curve

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