This Strategy’s Been Working Since the 1980s

Apr. 22, 2024

It’s a big question that no one really talks about.

How much data do we need to examine?

For example, if a strategy’s been working for the past five years, is that good enough?

How about three years? One year?

On one hand, almost every scammy marketing trick comes from showing a strategy with very little backtesting.

All the YouTube videos on covered call options strategies in 2021 ceased to exist in 2022. Why? Because the little strategy that was working for the past few months got punched right in the face by the Bear Market.

And if the guru had done any detailed testing, he would’ve known this.

On the other hand, who cares if something worked fifteen years ago? How is that in any way relevant to what has happened recently or what will happen tomorrow?

An example of this is the negative reward to risk Buy on Monday strategy we’ve looked at. It’s been phenomenal in the past few years due to increasing volatility in the Nasdaq. It was mediocre ten to twenty years ago.

Which matter more? Great now or great historically?

If I had a vote, I’d choose both. I like the confidence of seeing a strategy work well for twenty years. If I could see good performance over forty years, even better.

Remember what the best trader in the world, Jim Simons, always wants: more data.

To that end, let’s look at a long-term system using the best indicator we’ve looked at: Bollinger Bands™. Keep in mind, we have to use certain Futures contracts because data only goes back multiple decades on a few things (or a few stocks).

Here are the details via Tradestation:

Magic Bollinger Band™ Breakout on Sugar (SB)

As you can see, we’re using a long-term length on the Band and waiting for extreme moves much higher than the typical Standard Deviation of 2/-2. Here are some recent trades:

When price goes above or below the bands on a breakout, we enter and go for a big profit target.

And here’s the curve since 2000 (with costs built-in):

It doesn’t trade a lot but that’s an upward sloping curve. Now let’s take it all the way back to the 80s:

Hmm, it looks about the same. For four decades, it’s been consistently climbing upward.

Does that make you more confident or is it irrelevant?

One big thing to keep in mind: Futures data (and any data for that matter) is better when we look at the “recent” past. Futures becomes somewhat reliable around 2000-2002 and becomes really reliable from 2007 to now. So that four decade data may or may not be super accurate.

But it is interesting that the old data results look like the new data results.

In our next Newsletter, we’ll look at another one.

Talk soon.
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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.