The 200 Day Moving Average and ES Futures: A Viable Strategy?


The economic landscape is never straightforward and you need to look beyond the latest non-farm payrolls figure to get a proper appreciation of the signal obscured the noise. Having a thorough understanding of employment and housing conditions is fundamental for any professional market participant.  This is often where you will find advance warning of changing economic conditions.

In this case study, we’re looking at E-mini S&P500 futures with a twist. The existence of momentum is without doubt(1)https://www.aqr.com/library/journal-articles/fact-fiction-and-momentum-investing with even Gene Fama of Efficient Markets Hypothesis (EMH) fame conceding its existence(2)https://www.aqr.com/cliffs-perspective/fama-on-momentum. To this end, we previously worked for a very large fund manager whose entire investing philosophy is grounded in the EMH, yet even they employed momentum filters.

So we’re going to look at the viability of a 200 period simple moving average to time trades in the E-mini S&P500 futures. That’s our benchmark. Then we’re going to see what happens when we add another filter into the mix, the Macrowonk US Employment and Housing Indicators. In this case, long trades will only be entered when the E-mini is above the 200SMA and the US Employment and Housing Indicators are greater than 0. Short trades are reversed.

A note on money management used for the test; no stop-loss or target orders are used. Position sizing is anti-martingale with a max equity risk of 5% per trade. Commissions are $1 per side and slippage is 2 ticks.

Key Metrics:

Benchmark Macrowonk US Employment & Housing Indicator
Total Return: 10.87% 170.98%
Profit Factor: 1.12 10.87
Return/Drawdown Ratio: 0.39 15.53
Worst Case Drawdown: 27.89% 11.01%

Benchmark performance is barely profitable with a total return of 10% and a profit factor of 1.12. Drawdowns were nearing the 30% level.

What happens when we add the Macrowonk US Employment and Housing Indicators?

Total return over 12 years is now 170%. Risk adjusted returns have improved dramatically with the profit factor now > 10 while the worst case drawdown is approx. 11%.

Other Case Studies:

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Notes   [ + ]

1. https://www.aqr.com/library/journal-articles/fact-fiction-and-momentum-investing
2. https://www.aqr.com/cliffs-perspective/fama-on-momentum