BackTest on Displaced Moving Average (DMA): Simple is Good!

Displaced Moving Average, is perhaps one of the most simple technical indexes that I have ever tested, but it is one of the most stable technical indexes that I have ever seen among different Futures Contracts.

I tested it against all the contracts listed in China Futures Market, and it turned out that most of them suit pretty well. In daily basis, DMA is strong enough to capture big trends in price movements.

Let's look at the definition and formula of it:

Components:

• MA(t,12) = Simple Moving Average for close price in 12 days
• MA(t,26) = Simple Moving Average for close price in 26 days
• DMA(t) = MA(t,12) - MA(t,26)
• AMA(t,9) = Simple Moving Average for DMA in 9 days

Strategy:

• Long on the spot that DMA surpasses AMA
• (DMA(t) > AMA(t) and DMA(t-1) <= AMA(t-1))
• Short on the spot that DMA surpassed by AMA
• (DMA(t) < AMA(t) and DMA(t-1) >= AMA(t-1))

Even though, the results of DMA is vulnerable to different Futures Contract, but the truth is, when we combine them together, then the outcome is beautiful.

* Click this link to check out the performance of each individual Futures Contract:

https://drive.google.com/open?id=19DnrN0YQlJkcelnBzm4M6YAoE345p-4F

Profits & Loss of the entire Market:

The Sharpe of it, is 1.33, which is already very good as daily trend capturing strategies are not that stable, and this Sharpe suggests the stability of the entire strategy.

Note that cash, accounts, and trading volumes have not been adjusted for different kinds of Futures Contracts, and we assume that the maximum holding positions for all of them are 3 volume, and therefore the profit or loss from each individual contracts may be different.

But generally speaking, the results are stable even for the fact that individual risk has not been eliminated, as we can simply deduct the most profitable and least profitable contracts as follow:

We can observe that even though the absolute value of profits have been changed, the shape of it is stable. This partly suggest that our belief that DMA is stable in different contracts is reasonable.

Considering the fact that how simple DMA is, many of us assume that such index is no longer effective, and it is debatable whether the market is efficient and technical analysis is useless.

So, it can be possible the entire performance is out of luck. Therefore, be careful when investing with technical analysis.

* Source Code and Raw Data are not applicable.