Simple Moving Average Trading Strategy: Backtest and Evaluation

Simple moving average strategy backtests
Moving averages are one of the most commonly used indicators in technical analysis, and the simple moving average is the easiest one to construct. Do you know what it is? Can you make profitable simple moving average strategies in the markets?

Backtests indicate that you can use simple moving averages for short-term mean reversion and long-term trend-following. Additonally, you can use moving averages as a second parameter in a trading strategy.

A simple moving average (SMA) is a basic average of the price of an asset over a specified period calculated continuously for any new price data that forms in the time series. Since the price data keeps changing for each session and the average is calculated for each new data, the average changes constantly, which is why it is called a moving average.

Simple moving average strategy backtest and best settings

This website is all about quantified strategies, and we go straight to our backtests: what is the best use of a simple moving average? All in all, we test four different moving average crossover systems to find the best simple moving average strategy.

Trading Rules

We backtest the following four different

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• Strategy 1: When the close of SPY crosses BELOW the N-day moving average, we buy SPY at the close. We sell when SPY’s closes ABOVE the same average. We use CAGR as the performance metric.
• Strategy 2: Opposite, when the close of SPY crosses ABOVE the N-day moving average, we buy SPY at the close. We sell when SPY’s closes BELOW the same average. We use CAGR as the performance metric.
• Strategy 3: When the close of SPY crosses BELOW the N-day moving average, we sell after N-days. We use average gain per trade in percent to evaluate performance, not CAGR.
• Strategy 4: When the close of SPY crosses ABOVE the N-day moving average, we sell after N-days. We use average gain per trade in percent to evaluate performance, not CAGR.

The results of the backtests can be summarized in the following four tables – one for each system:

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Strategy 1

MA Days	5	10	25	50	100	200