These SPDR S&P 500 (SPY) signals traded as directed would have performed around 2.5 times better than buy-hold with an ROI of 98% for the period 16-Aug-16 to 19-Sep-18
The SPDR S&P 500 (SPY) signals were selected from over a million backtest results for their reward/risk and parameter sensitivity characteristics. Backtests don't always generate reliable signals which can be counted on moving forward but many traders find value in knowing what buy and sell signals would have worked well in the past.
Returns for the SPDR S&P 500 (SPY) signals
For the 528 day (2.1 year) period from Aug 16 2016 to Sep 19 2018, these signals for SPDR S&P 500 (SPY) traded both long and short would have yielded $9,780 in profits from a $10,000 initial investment, an annualized return of 38.6%. Traded long only (no short selling) the signals would have returned $6,906, an annualized return of 28.5%. 87.7% of time was spent holding stock long. The return would have been $3,914 (an annualized return of 17.1%) if you had bought and held the stock for the same period.
Signals and Trades
Not all signals are acted upon and signals are often reinforced in this type of strategy. If you are long in the security, buy signals are not acted on, for example. Similarly if you are short you must ignore sell signals. There were 25 buy signals and 32 sell signals for this particular SPY strategy .These led to 9 round trip long trades of which 8 were profitable, and 8 short trades of which 7 were profitable. This is a daily strategy--daily OHLC data is used to derive all signals and there is at most one buy and sell signal and one trade per day.
Drawdown and Reward/Risk
Drawdown (the worst case loss for an single entry and exit into the strategy) was 4% for long-short and 4% for long only. This compares to 10% for buy-hold. The reward/risk for the trading long and short was 4.33 compared to 1.15 for buy-hold, a factor of 3.8 improvement. If traded long only, the reward/risk was 3.21. We use drawdown plus 5% as our risk metric, and annualized return as the reward metric.
The backtests assume a commission per trade of $7. Returns have been adjusted for the worst case effects of 8 dividends.