Skip to content

Speculative Demand Ratio: Backtest Results on SPY

July 12, 2010

This is a backtest of using the Speculative Demand Ratio on the S&P  500 (SPY) using the 9 sector spyder ETFs to measure risk sentiment. The construction methodology involves taking the 20-day change in 20-day average dollar volume as a proxy for the change in money flow. Then we take the 4 highest sector spyder ETFs by 100-day HV (historical volatility) and take the change in money flow for these 4 versus the lowest 4 by 100-day HV. This is the speculative demand ratio or SDR—which captures the money flow into risky assets within an index versus the less risky assets within the index. The ratio is normalized using a 1-year percentile rank.  As you can see, the SDR is an excellent intermediate-term trend system for trading the S&P500. Entering long when the SDR is at extreme highs and exiting below the median produces a very high w% as well as a healthy w/l ratio typical of trend-following systems. The average days per trade is roughly 20 days, and the average trade is a very tradeable +2%–easily surviving commissions.

4 Comments leave one →
  1. Alex permalink
    July 13, 2010 2:52 am

    Hi David,

    What software did you use for the backtest?

    Tks
    Alex

  2. July 13, 2010 2:41 pm

    Hi David,

    I used Yahoo´s data and got somewhat better results so you are probably using some other data provider. 1-year percentile rank is the last 252 days? The only trade this year was open between 2/2/2010 – 3/17/2010 if I got my spreadsheet set up right.

    This looks very interesting as well the TSI, thanks for sharing.

    regards,
    JF

  3. July 14, 2010 8:57 pm

    Hi David,

    Have you thought of turning your Time Machine into a general purpose adaptation engine? A DV Adaptation Engine would make a great product IMHO. Apologies if you have already posted regarding this, I have not read all of your articles (yet).

    Regards,

    James

    • david varadi permalink*
      July 15, 2010 2:33 am

      hi james, great idea—corey and i were ironically chatting about this earlier today.
      its in the works!
      best
      dv

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: