Risk On /Risk Off Strategy with ETF

Feb 4, 2015

Is possible to be determine when to be on the right side of the market , most of the time ? well yes, using simple market timing strategies such as the SPY against it's 200 ma, would help you avoid all the bear market in the last 20 + years . But is there another way to do this ?

Here's a strategy i'm currently forward testing in my IB account. By calculating the ratio of two ETFs ( one tracking the market , the other cash or bonds) , and plotting it against it's 100 moving average , produces some interesting results.

Risk "On" instrument : SPY ( SP 500)
Risk "Off" Instrument : TLT ( 20 Year Treasury)

based on the results , the strategy doesn't always beat the S&P 500 , in fact , it only beat the market 3 years out of ten and matched the same return in 2014. More importantly, it performed very well during bear markets , look at the return for 2008, 2011.

The backtest looks good , but i only rely on forward/ live testing results. I will try to update this post with my results.

Cheers

Algo

P.S , the strategy has been in TLT ( risk off) since July 2014.