MA200 trend following strategy

This is the mother of all strategies, the strategy learned on lesson 1 on your every day trading class. The MA200 long only strategy. Although already widely recognized, there's value to revisit old edges to see if they are holding up. In this post we're going through how this strategy has performed on the German DAX40 index.

We're also investigating if there are other Moving Average types that works even better, like the Exponential Moving Average.

So the conditions here are super simple.

1. Enter a long trade when the price crosses over MA200

2. Sell when close crosses under MA200

Here are the results compared to just buying and holding throughout the whole backtest period (15 aug 1972 until today)

So what do we see in the equity curves? We see that the MA200 strategy has similar overall return as buying&holding but with smaller drawdowns.

If we go in to the backtest report we see that we are in market 61.58% of the time, we have a winrate of 25.58% and a gain/loss ratio of 1.99.

Looking at how the MA200 strategy has performed compared to just buy&hold on a yearly basis we see that the MA200 overperforms the index(buy&hold) on 22/53 years. 22

So what do you actually get out of running a strategy like this? You will get similar returns, with lower drawdowns and the chance to put your capital elsewhere around 37% of the time (when the index is below MA200).

But can we improve it?

Well, you can always improve the backtest of a strategy, but to avoid curve fitting I'll just try one more thing: testing some other moving averages. I will not go through the difference between the moving averages. It's just one google away.

Anyway, here are the results. For other indexes like CAC and OMX I have found that the triangular moving average works best, but it's clear that for DAX the best moving average is the simple moving average.

Type	Gain	Winrate	Trades	Avg. gain	Max DD
Simple	18,422	32.30%	161	114.43	3,726
Exponential	17,736	30.14%	209	84.87	2,972
End Point	9,955	36.49%	370	26.91	4,079
ZeroLag	13,959	32.25%	369	37.83	2,940
Weighted	13,997	28.84%	267	52.43	4,970
Hull	12,367	35.89%	443	27.92	3,344
Wilder	14,789	30.97%	155	95.35	3,630
Time Series	10,206	34,89%	364	28.04	3,344
Triangular	14,329	34,08%	179	79.55	5,127

That was it. I think it's a viable strategy that can be combined with other edges to make something even better.

The ProRealTime™ code

DEFPARAM CumulateOrders = False 

MA200 = average[200, MovingAverageType](close)

BuyCondition = close crosses over MA200
SellCondition = close crosses under MA200

IF BuyCondition THEN
BUY 1 CONTRACT AT MARKET
ENDIF

IF SellCondition THEN
SELL 1 CONTRACT AT MARKET
ENDIF

Please optimize the variable MovingAverageType between 0-8 with step interval 1 to try out the different moving average types available in ProRealTime™