Leveraged ETFs: Backtesting a Moving Average System (SDS, SSO, QLD, QID, QQQQ)
Leveraged ETFs offer the potential for additional returns with additional risk. I have tested or featured other’s tests of several moving average and momentum systems on my site over the past year but have never analyzed leveraged ETFs, primarily because they are only short-term trading vehicles (from a day to no more than a few weeks) and I tend to focus on longer-term portfolio strategies.
With that being said I thought it would be interesting to analyze a simple moving average system on leveraged ETFs. Please note that these tests have several limitations, the most significant being that leveraged ETFs have limited trading history. In addition, as previously stated they are best used only as short-term trading vehicles because of the time decay inherent in the leverage.
Using ETF Replay, which has a free built-in moving average backtest feature, I backtested (NYSE:SDS) and (NYSE:SSO), the 2x leveraged S&P 500 short and long ETF, and (NYSE:QLD) and (NYSE:QID) the 2x long and short leveraged (NYSE:QQQQ) ETF (Nasdaq 100). The tests exclude commissions and taxes but include any dividends as part of the total return. An additional note on returns, ETF Replay backtests will not have an initial buy signal until the ETF trades below the moving average and then back above. The first time it does that, a buy is generated and it is from that same date the ETF benchmark returns are calculated. So this means that depending on when the first buy triggers will change the starting point for the buy and hold comparison.
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The results are below and show a wide range of results, but mostly negative for leveraged ETFs as part of a moving average system.
| 200 day crossover at month end | ||||
| Symbol | Free Trend Analysis | System Return | Buy & Hold | Start Date |
| SDS – short | Here | -19.1 | -29.8 | 07/14/06 |
| SSO – long | Here | 13.9 | -58.4 | 06/21/06 |
| SPY | Here | 13.3 | -19.8 | 7//14/06 |
| QLD – long | Here | -8.4 | -36.5 | 06/21/06 |
| QID – short | Here | -36.9 | -60.5 | 7//14/06 |
| QQQQ | Here | 7.6 | -6.1 | 7//14/06 |
| 200 day crossover day of cross | ||||
| Symbol | System Return | Buy & Hold | ||
| SDS – short | Here | -7.7 | -30.3 | 7//14/06 |
| SSO – long | Here | -8.8 | -55.9 | 06/21/06 |
| SPY | Here | -2.7 | -19 | 7//14/06 |
| QLD – long | Here | 29.1 | -29.4 | 06/21/06 |
| QID – short | Here | 3.7 | 60.3 | 7//14/06 |
| QQQQ | Here | -2.8 | -3.6 | 7//14/06 |
| 50 day crossover at month end | ||||
| Symbol | System Return | Buy & Hold | ||
| SDS – short | Here | -18 | -32.6 | 07/14/06 |
| SSO – long | Here | -34.5 | -54.6 | 06/21/06 |
| SPY | Here | -3.5 | -19.8 | 7//14/06 |
| QLD – long | Here | 38.5 | -30.4 | 06/21/06 |
| QID – short | Here | -30.2 | -61.5 | 07/14/06 |
| QQQQ | Here | 11.7 | 7 | 7//14/06 |
| 50 day crossover day of cross | ||||
| Symbol | System Return | Buy & Hold | ||
| SDS – short | Here | -57 | -31.1 | 07/14/06 |
| SSO – long | Here | -32.7 | -54.3 | 06/21/06 |
| SPY | Here | -14.3 | -17 | 7//14/06 |
| QLD – long | Here | 15.9 | -26.1 | 06/21/06 |
| QID – short | Here | -26.4 | -62.4 | 07/14/06 |
| QQQQ | Here | 21.9 | 8.8 | 7//14/06 |
Written By Scott’s Investments Disclosure: No Positions
I’ve done extensive work using a variety of my MA systems on these 2x etf’s, even the 3x. It really is a tricky prospect of pursuit, especially intraday. It can be done, and without curve fitting, but you really have to think outside the box while taking every conceivable assumption that you have not accounted for into consideration.