Consistency is really important in trading. For this post, I finally was able to construct the rolling risk adjusted return of the strategy through excel. This may not mean a lot to you but for a backtest that stretched more 20 years, the equity curve really doesn’t reveal much. The graph below plots the rolling 1 year risk adjusted return of the strategy which was calculated by dividing rolling 1 yr return by the standard deviation of those return.
As you can see the strategy is pretty stable in its return during bull markets. During the crash/bear period of 87’, 90’, 00’ and 08’, the strategy performed well compared to the market index in the sense that it was able to get the investor to stay in cash preventing from large drawdowns. This is one of the most important aspect of the system as with the implementation of the moving average, anything that dips below it moves the investor back into cash until otherwise.
This strategy is by no way tradable. It is merely displayed to proof a point that relative strength rotational models works.