Test of Ablin Trend Following Strategy
This is a quick test of a Jack Ablin strategy shared over at the Big Picture. To be fair, I can’t find where Ablin originally discussed this strategy, so I don’t know what context he put it in, but the rules appear to be to go long the S&P 500 when it closes more than 5% above its 200-day moving average and hold until it breaks 5% below its 200-day MA. See graphic from Ablin (click to zoom):
For comparison’s sake, I’ve also included a simpler strategy in this test: buy when the S&P 500 crosses over its 200-day MA and sell when it crosses below.
The results for Ablin’s strategy (red) and the simpler version (green) trading the S&P 500 frictionless and with no return on cash from 1951:
And for the number lovers:
With the exception of the very narrow window of time from Ablin’s original graphic the super simple strategy outperformed both Ablin’s variation and the broader market. And this is a good example of the problem with drawing conclusions from just part of the story.
Which one is going to be better tomorrow? I have no idea. But I have a sneaking suspicion that the 5% bands were added because without them the strategy would have entered and exited the market prematurely quite a few times over the last 10 years (and that’s never good for impressing people). But armed with the bigger picture over the last 50+ years, I would guess that some folks would wager that the simpler strategy stands a better chance of prevailing in the future.
Just my $0.02.
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