Buy and hold Vs trend following.

So let us continue our discovery. We started with Nifty 200 Momentum 30 index. Mr Kudva suggested that we do it on the index itself rather than the factor.

So, here it goes.

Start date: 03/April/2005 to current.

Starting capital: 200000

Ending capital: 1534815.91

Net Profit: 1334815.91

CAGR: 13.22%

MaxDD: -62.97%

Car/MaxDD: 0.21

Here is how the monthly performance table looks like

So, lets see if Super trend comes to our rescue on this one or ditches us!!!

Starting capital: 200000.00

Ending Capital: 1486053.06

Net profit: 1286053.06

CAGR: 13.00%

MAXDD: -29.42%

Car/Max: 0.44

Find below the same stats represented graphically.

And here is the monthly table of returns.

Conclusion

In this example, The drawdown gets reduced by half while the returns are the same. Please note that future is not same as past and therefore may be the optimized parameters are curve fitted. To remove that bias, We ran the simulation with 04 different sets. the random parameters would have fetched 10.8% returns with max DD of 37%. Even that is better than a 62% cut, i’d say!!

A total of 21 trades were taken in this period of 16 years out of which 70% were profitable.

If we do a similar exercise with Dual momentum, result should be attractive as well. It may not enhance returns, but will definitely cut the drawdowns ensuring you stay in the game for long.

Tax implications would obviously be there.

Another Obvious implication is that Momentum index performs much better than Nifty 200 index (on both sides, lol)

Comments are welcome.

Insights for DIY investors on Risk management, Option strategies, Special Situations & Momentum.