{"id":40890395,"date":"2023-12-20T09:49:04","date_gmt":"2023-12-20T04:19:04","guid":{"rendered":"https:\/\/stockviz.biz\/index.php\/?p=40890395"},"modified":"2023-12-20T17:59:10","modified_gmt":"2023-12-20T12:29:10","slug":"mad-moving-average-distance","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2023\/12\/20\/mad-moving-average-distance\/","title":{"rendered":"MAD &#8211; Moving Average Distance"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Sometimes, a research paper comes along that gives academic rigor to an obvious thing that trend-followers were doing for decades and makes you sit up and take notice. <em>Moving Average Distance as a Predictor of Equity Returns<\/em>, Avramov, Kaplanski and Subrahmanyam (<a rel=\"noreferrer noopener\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3111334\" target=\"_blank\">SSRN<\/a>) does just that.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"179\" height=\"64\" src=\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2023\/12\/mrat.png\" alt=\"\" class=\"wp-image-40890396\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Turns out, a simple moving average crossover signal proves robust to momentum, 52-week highs, profitability, and other prominent anomalies. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A later paper extends it to international stocks and finds similar results (<a href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=4652949\" target=\"_blank\" rel=\"noreferrer noopener\">SSRN<\/a>).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A quick backtest shows that it works for Indian stocks as well. <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/technical\/MAD-trend\/mad-cum-ret.21.200.1.ALL.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">It looks like COVID turbo-charged this strategy. The pre-COVID equity curve is saner.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/technical\/MAD-trend\/mad-cum-ret.21.200.1.pre-2020.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">The returns are good but it comes with some nasty drawdowns. Not sure if most investors can stomach a 25% drawdown that lasts over a year. Can it be made better by applying a volatility filter?<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/technical\/MAD-trend\/mad-vol-cum-ret.21.200.1.pre-2020.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">By sacrificing 2 points of returns, you can get to a sub 20% drawdown. Also, the filter worked during the most recent 2021-23 drawdown as well.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/technical\/MAD-trend\/mad-vol-cum-ret.21.200.1.post-2020.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">You can follow along the live version of this strategy here: <a rel=\"noreferrer noopener\" href=\"https:\/\/stockviz.biz\/theme-eq\/3BD48C76-BE52-4158-84FA-2C22355AEC22\" target=\"_blank\">MAD 21\/200<\/a><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Code and charts on <a href=\"https:\/\/github.com\/stockviz\/blog\/tree\/master\/technical\/MAD-trend\" target=\"_blank\" rel=\"noreferrer noopener\">github<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Sometimes, a research paper comes along that gives academic rigor to an obvious thing that trend-followers were doing for decades and makes you sit up and take notice. Moving Average Distance as a Predictor of Equity Returns, Avramov, Kaplanski and Subrahmanyam (SSRN) does just that. Turns out, a simple moving average crossover signal proves robust &hellip; <\/p>\n","protected":false},"author":2,"featured_media":2091073,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[3541,3491,3793],"class_list":["post-40890395","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-backtest","tag-momentum","tag-trend-following","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890395","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=40890395"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890395\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2091073"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=40890395"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=40890395"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=40890395"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}