Hello, I would like to introduce a new trading strategy that we put live here on Collective2 since last week. This is based on a quantitative-based algorithm. It uses proprietary alternative data to “predict” the market sentiment for the next month. We believe the source of alternative data that we are using will not decay and cannot be influenced by parties. It is a relatively “boring” trading strategy but one with succesful results.
We use 3 times leveraged ETF’s that are based on the Nasdaq index, S&P500 index, Gold and US Treasuries. All ETF’s are listed on ARCA.
The algorithm distinguishes between 6 different market regimes being Super Bull, Bull, Bear and 3 more stable market regimes. Based on the identified market regime, it will invest in a specific combination of ETF’s / indextrackers. So in markets within turmoil it will move to a Bear market position or move to US Treasuries or Gold.
Backtests have shown the following results over a 15-year period:
- We target an average return of 80-85% per annum
- The algorithm is performing the best in trending markets, either upwards or downwards. In more stable markets, the performance is also good, but it does have more difficulty in accurately predicting the direction of the market then (which is logical, hedge funds will also show worse results in those years and a Buy-and-Hold in that market also will not show superb results).
- Over the full 15 year period, the algorithm is showing profitability in every single year. This is quite unique for a strategy.
- The max drawdown over the full 15 year period is comparable to the drawdown you would have had with a buy-and-hold strategy on the (unleveraged) S&P500 index over this period.
- The algorithm is designed to trade daily, It will adjust the predicted market sentiment once per month, unless there is a reason to do it earlier (when all hell breaks loose, it will switch earlier). Daily rebalancing is done to increase the returns and lower risks.
- The algorithm will only use a short position in the Bear market regime. It will short the S&P500 3-times leverage ETF in that regime. All other market regimes only use Long positions.
- Our professional team is monitoring the performance of all of our algorithms daily.
This strategy has been designed to be suitable for investment amounts from 5K upwards to very big volumes. The ETF’s we are using have a very big liquidity so we hardly have any impact on the market with our volumes.
Below is the URL to this trading strategy:
For people that are interested we do have a PDF available with the backtest results from 2014 to July 2019.