There is a PRO version of the Emerging Monthly Mover FREE strategy. Be sure to familiarize yourself with this strategy before moving on to analyzing the PRO version.
Inspirations
Details about the Emerging Monthly Mover FREE can be found here.
The PRO version expands the capabilities of the basic version, improving most metrics, including:
Improving Return/DD from 6 to almost 9 in the PRO version
Winrate from 61% to nearly 68%
Decreasing capital exposure from 21% to 13%.
The PRO strategy has exactly the same day-of-the-month conditions as the basic version, but it differs in two elements. In this article, we will show the differences in the results of both versions.
Backtest 1, Fixed $ Money Management
In this scenario, we are investing a constant amount of $100k.
We are testing the period of the last 21 years from April 2003 to February 2025.
Invested capital: $100,000
Tested period in years: 21
Tested Instrument: EEM
Equity Chart for this test:
Year-over-year and month-over-month results:
Click the button to see the latest backtest:
Backtest 2, % Money Management
In this backtest, we invest in a strategy that constantly uses 100% of the current capital (starting with $100'000). This means that as the capital grows or decreases, the position value changes proportionally. The rest of the parameters remain unchanged.
The equity chart for this test looks as follows.
The chart includes a benchmark, which is a thin yellow line.
A red line on the chart is an Open Drawdown line.
Basic statistics resulting from the test:
Analysis of Trading Strategy
Net Profit and CAGR
The net profit above $543'000 in the tested strategy is lower than the Benchmark (Buy & Hold SPY marked in yellow on the chart), which is $872'990, translating to a CAGR of 9.27% vs 11.47%. This means that the tested strategy achieved a lower net profit and slightly lower average annual return.
Drawdown and Return/Drawdown Ratio
The maximum open drawdown in the analyzed strategy was -15.23% vs -55.19% in the benchmark, resulting in a better Return/Open Drawdown ratio of 8.12 vs 4.76 respectively. This means that the analyzed strategy was not only more profitable but also less risky compared to the benchmark.
Exposure
The exposure was just 13% compared to 100% in the benchmark. This low exposure is a key advantage of the PRO strategy. You can learn more about how exposure is measured in this dedicated study.
Winning Percent
The winning percentage was nearly 68%. This high rate of profitable trades offers significant psychological comfort about how often profits are generated.
SL & TP
The strategy does not use typical stop loss and take profit levels, although there are no obstacles to implementing them. According to our tests, for most ETF/stock strategies, these settings worsen results. Instead, the strategy has one exit signal or additional safety exit after X bars (time-based stop loss). Diversification within the portfolio of various strategies serves as protection against the strong impact of a potential price change in a single stock on the entire portfolio.
Visit the stop loss order page.
Market Regime
The strategy was tested in all basic market regimes and includes filters implemented based on this. Read more about market regimes.
Trading Costs
Trading costs and slippage were included in the backtests. You can view our latest research on trading costs with Alpaca Broker here. In a diversified portfolio of stocks and strategies, transaction costs can impact your profit or loss. Therefore, take the time to thoroughly test and select a broker.
Robustness
The number of historical transactions, 180, is significantly lower than Stockpicker-type strategies, which can provide even over 100'000 transactions in robustness tests.
The strategy has a few rules: generally two entry rules and one exit rule. We believe that fewer parameters make a strategy more robust. So, we aim to keep our strategies simple, using only parameters that significantly impact effectiveness and align with the strategy's nature.
Recommended Instruments
The recommended primary instrument for this strategy in Algocloud is EEM however also good results can be achieved eg. in VWO.
Pattern Day Trader
The strategy does not close transactions on the same day, so it does not meet the Pattern Day Trader (PDT) criteria. This means that a real account is not required for the entire portfolio of at least $25k.
Correlation
To check the correlation of the strategy with others, visit the correlations page.
Summary & Strengths and Weaknesses of the strategy
Let's compare the PRO version vs. FREE (MM%):
The PRO strategy achieved a lower total monetary result by $85k, yet we rate it higher because it offers:
a higher Winrate (almost 68% vs 61.6%)
a lower drawdown and higher Return/DD ratio
half the exposure, i.e. 13% instead of 21%. This allows the same capital to be used at the end of the month for other strategies.
Strengths of the PRO strategy:
Low capital commitment. The strategy offers very low capital commitment with an exposure of 13% vs the benchmark's 100%, meaning it could be successfully used in a portfolio alongside other strategies.
Profit stability. The CAGR was 9.27%, slightly lower than the benchmark's 11.44%.
Low drawdown: The Max Open Drawdown in the analyzed strategy was 15.23% compared to 55.19% in the benchmark. This shows that the short exposure time translates to much lower risk, making the strategy less risky and quite stable.
High winning percent ratio. 68% of transactions ended in profit, highlighting the effectiveness and psychological comfort of using the strategy.
Low correlation. The strategy is relatively uncorrelated with others.
Percentage of same-day closed transactions. All transactions are closed within a few days, so there is no risk of violating Pattern Day Trader rules.
Weaknesses of the strategy:
Robustness. The strategy has significantly fewer transactions than Stockpicker-type strategies, which can be seen as a disadvantage in terms of robustness. Therefore, the strategy requires incorporation into a portfolio of diverse strategies with higher robustness.
Summary
Emerging Markets can experience much stronger growth than the US market in certain periods. Therefore, it is worth having exposure to these markets as well. As shown, holding this ETF for the entire month is not effective. By using capital for only 10-20% of the time (depending on the strategy), very good results can be achieved without exposing oneself to large fluctuations.
I personally use the PRO strategy in my portfolio every month, but the decision on whether to use it is up to you!
What you receive in the package for this strategy:
The ebook presents detailed rules and results for the strategy.
SQX file ready to be used on the Algocloud and StrategyQuant platforms.
Pseudocode that describes all the rules in an easy-to-understand way.
Disclaimer
The results obtained from historical data do not guarantee future outcomes. The effectiveness of a strategy can change over time. Backtesting is a tool that allows for the analysis and evaluation of an investment strategy based on historical data. Various factors, such as market changes or economic conditions, can influence the effectiveness of a strategy over time.
Investing always involves risk. This material is not investment advice. We share our experience and algorithms for educational purposes. We make efforts to ensure that our algorithms are error-free, but neither we nor the tools we use guarantee the absence of technical issues. Any decisions to use a particular strategy are made at your own risk and should be preceded by careful understanding and verification. You should always carefully consider your investment goals and risk tolerance before making investment decisions.
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