One of the classic long-term trend models is the Golden Cross, where you go long the market when the 50-day moving average crosses above the 200-day moving average. When the 50-day moving average crosses below the 200-day moving average, you sell any open position. This backtest is setup not to go short; the main reason is that stock markets trend up over time for a multitude of reasons, with inflation being a significant one. The data goes back to 1928 for the Golden Cross strategy. Here, its Sharpe Ratio (SR) is 0.58 compared to buy and hold at 0.41 so it seems to be a robust outperforming strategy. It is still suggesting that we remain long the SP 500. That places us in a quandary, as we have 2 opposing signals.
Over the coming weeks, months, and years, we will explore more models and come up with a multi-factorial approach that incorporates different factors depending on the investor’s or trader’s time horizon.