Models
Trend rules cut drawdowns. None beats buying and holding.
Five pre-registered trend rules on seven Indian assets, and sector momentum, tested after costs and Indian capital-gains tax. Not one rule's edge survives a correction for the number of rules tried.
For: investors tempted by timing rules, and anyone who wants to see a null result stated plainly.
These are historical tests on indices, not signals. The rules and assets were fixed in advance in the pre-registered specification. A deflated Sharpe ratio below 0.95 means the edge could be luck given 35 trials.
Trend following, full history
| Asset | Rule | From | Rule CAGR | Buy-hold CAGR | After tax, rule minus buy-hold | Rule worst fall | Buy-hold worst fall | Time invested | Deflated Sharpe vs buy-hold |
|---|---|---|---|---|---|---|---|---|---|
| Nifty 50 | 10-month average | 2000-04-03 | 11.8% | 12.2% | -2.3 pts | -39% | -60% | 71% | 0.02 |
| Nifty 50 | 200-day average | 2000-04-17 | 11.5% | 12.2% | -3.9 pts | -27% | -60% | 71% | 0.01 |
| Nifty 50 | 12-month momentum | 2000-07-03 | 10.4% | 12.5% | -3.2 pts | -37% | -60% | 64% | 0.00 |
| Nifty 50 | Blend of all four | 2000-07-03 | 11.4% | 12.5% | -3.4 pts | -27% | -60% | 59% | 0.01 |
| Nifty 50 | Breakout | 2000-06-30 | 8.7% | 12.4% | -4.2 pts | -30% | -60% | 56% | 0.00 |
| Nifty 500 | 10-month average | 1995-11-01 | 12.8% | 13.5% | -3.0 pts | -41% | -67% | 69% | 0.01 |
| Nifty 500 | 200-day average | 1995-11-09 | 14.2% | 13.6% | -2.6 pts | -36% | -67% | 68% | 0.03 |
| Nifty 500 | 12-month momentum | 1996-02-01 | 10.1% | 14.2% | -5.2 pts | -49% | -67% | 60% | 0.00 |
| Nifty 500 | Blend of all four | 1996-02-01 | 11.9% | 14.2% | -5.3 pts | -43% | -67% | 58% | 0.00 |
| Nifty 500 | Breakout | 1996-01-30 | 9.3% | 14.3% | -6.0 pts | -43% | -67% | 50% | 0.00 |
| Nifty Next 50 | 10-month average | 2003-09-01 | 17.5% | 17.4% | -1.8 pts | -37% | -72% | 74% | 0.04 |
| Nifty Next 50 | 200-day average | 2003-08-27 | 16.1% | 17.6% | -2.3 pts | -37% | -72% | 73% | 0.01 |
| Nifty Next 50 | 12-month momentum | 2003-12-01 | 12.4% | 16.5% | -4.5 pts | -44% | -72% | 66% | 0.00 |
| Nifty Next 50 | Blend of all four | 2003-12-01 | 15.0% | 16.5% | -3.8 pts | -33% | -72% | 63% | 0.01 |
| Nifty Next 50 | Breakout | 2003-11-07 | 13.3% | 16.7% | -4.6 pts | -36% | -72% | 63% | 0.00 |
| Nifty Midcap 150 | 10-month average | 2006-02-01 | 11.1% | 15.2% | -5.7 pts | -52% | -73% | 74% | 0.00 |
| Nifty Midcap 150 | 200-day average | 2006-01-17 | 18.0% | 15.3% | -0.0 pts | -32% | -73% | 72% | 0.16 |
| Nifty Midcap 150 | 12-month momentum | 2006-05-02 | 10.0% | 14.2% | -5.7 pts | -53% | -73% | 65% | 0.00 |
| Nifty Midcap 150 | Blend of all four | 2006-05-02 | 13.0% | 14.2% | -3.3 pts | -37% | -73% | 62% | 0.01 |
| Nifty Midcap 150 | Breakout | 2006-04-04 | 10.7% | 14.4% | -4.4 pts | -38% | -73% | 56% | 0.00 |
| Nifty Smallcap 250 | 10-month average | 2006-02-01 | 15.4% | 13.6% | -0.1 pts | -45% | -76% | 67% | 0.11 |
| Nifty Smallcap 250 | 200-day average | 2006-01-17 | 18.1% | 13.6% | +1.0 pts | -34% | -76% | 66% | 0.29 |
| Nifty Smallcap 250 | 12-month momentum | 2006-05-02 | 11.7% | 12.7% | -2.5 pts | -48% | -76% | 55% | 0.02 |
| Nifty Smallcap 250 | Blend of all four | 2006-05-02 | 14.6% | 12.7% | -0.7 pts | -36% | -76% | 58% | 0.11 |
| Nifty Smallcap 250 | Breakout | 2006-04-04 | 12.4% | 13.1% | -1.4 pts | -39% | -76% | 49% | 0.03 |
| Gold | 10-month average | 2001-06-01 | 12.0% | 14.8% | -5.1 pts | -25% | -26% | 79% | 0.00 |
| Gold | 200-day average | 2001-05-28 | 13.0% | 14.6% | -5.3 pts | -25% | -26% | 79% | 0.00 |
| Gold | 12-month momentum | 2001-09-03 | 13.1% | 14.9% | -3.8 pts | -23% | -26% | 72% | 0.00 |
| Gold | Blend of all four | 2001-09-03 | 11.6% | 14.9% | -6.3 pts | -22% | -26% | 63% | 0.00 |
| Gold | Breakout | 2001-08-08 | 13.0% | 14.9% | -4.1 pts | -23% | -26% | 73% | 0.00 |
| G-sec 5-year | 10-month average | 2002-07-01 | 7.4% | 7.5% | -0.9 pts | -5% | -7% | 94% | 0.03 |
| G-sec 5-year | 200-day average | 2002-06-21 | 7.1% | 7.6% | -1.4 pts | -8% | -7% | 94% | 0.00 |
| G-sec 5-year | 12-month momentum | 2002-10-01 | 7.0% | 7.4% | -1.5 pts | -5% | -7% | 61% | 0.01 |
| G-sec 5-year | Blend of all four | 2002-10-01 | 7.0% | 7.4% | -1.9 pts | -5% | -7% | 60% | 0.01 |
| G-sec 5-year | Breakout | 2002-09-04 | 7.2% | 7.4% | -0.9 pts | -5% | -7% | 93% | 0.01 |
Gold: growth of 1 under each trend rule and buy-and-hold
Weekly, pre-tax, after costs. Log scale, so equal slopes are equal returns.
Buy and hold200-day average12-month momentumBlend
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Sector momentum
Each month, hold the three NSE sector indices with the best 12-month (or 6-month) return, skipping the latest month, against an equal-weighted basket of all sectors.
| Rule | Window | Momentum CAGR | Equal-weight CAGR | Nifty 500 CAGR | Momentum minus EW | Months beating EW | Worst fall | Deflated Sharpe vs EW |
|---|---|---|---|---|---|---|---|---|
| mom12_1 | full | 14.5% | 15.5% | 13.7% | -1.1 pts | 49% | -56% | 0.41 |
| mom12_1 | first_half | 16.3% | 17.2% | 14.4% | -0.9 pts | 54% | -56% | – |
| mom12_1 | second_half | 12.8% | 13.8% | 12.9% | -1.0 pts | 45% | -36% | – |
| mom12_1 | since_2012 | 14.1% | 16.2% | 14.3% | -2.2 pts | 47% | -36% | – |
| mom6_1 | full | 16.9% | 15.5% | 13.7% | +1.4 pts | 50% | -53% | 0.73 |
| mom6_1 | first_half | 17.7% | 17.2% | 14.4% | +0.5 pts | 49% | -53% | – |
| mom6_1 | second_half | 16.5% | 13.8% | 12.9% | +2.7 pts | 52% | -42% | – |
| mom6_1 | since_2012 | 17.0% | 16.2% | 14.3% | +0.8 pts | 51% | -42% | – |
Sector momentum against equal weight
Monthly, after costs.
Top-3 sector momentumEqual-weight sectors
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