Although traders and investors use simple timing functions to exit the stock market before a large correction, a particular choice can make a difference. Access to the full report requires a Premium Articles or All-in-One subscription.
This article includes three examples of introducing timing: one for buy and hold and two for popular strategic allocations. In all three cases, it is not the popular choice of timing function that delivers the best result.
All backtests in this article start on January 2, 2003, and end on October 2, 2023. We did not include any commissions or slippage.
The first example is for the SPY ETF buy and hold. Below are the equity chart and performance metrics.
Those who consider a maximum drawdown of -55.2%, a low Sharpe ratio of 0.52, and two years with losses of 36.8% and 18.2% unacceptable usually would like to consider some timing function to use in the future to improve risk-adjusted performance.
Below are two simple timing functions we will use for the analysis in this article.
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Specific disclaimer: All charts in this report are for informational purposes only. See the disclaimer for more information.
Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.
Charting and backtesting program: Amibroker. Data provider: Norgate Data
