Futures strategy portfolio
One rule on several markets at once, each sized so a day’s range is worth the same dollars — the way managed-futures funds trade, where the diversification is most of the edge.
Markets and prices
The rule
Long while the close is above the 200-day average, flat below.
The 200-day rule (Faber 2007, "A quantitative approach to tactical asset allocation", with a 10-month average): over a century it earned about what the market did with half the worst fall, by being out of the big bear markets. It pays with whipsaws when the market hovers at the average, which a band around the average reduces.
Margin for several markets held overnight adds up: see each market’s contract on the Backtest page. Nothing times six is still nothing — a rule that loses on every market alone will not be saved by adding them up.
About Strategy Portfolio
The portfolio runs one rule from the Library across several futures markets at once, each sized alike, and adds them up: combined profit, worst drop and the margin it needs, next to each market on its own.
Research on trend following found the edge in any one market small and the gain from spreading a rule over many markets large; the portfolio shows whether that holds for the rule you pick.
Questions
Why run one rule on many markets?
A single market’s record is mostly noise. Spreading the same rule over markets that don’t move together smooths the result and shows whether the rule itself has an edge.
How are the markets sized?
Each so that a day’s usual range is worth the same dollars — the way managed-futures funds size them — so no single market dominates the total.