Using Levered ETFs in IRA - 10 years - 24% CAGR, 1.56 Sharpe

Very nice!  I couldn't help myself, I had to add TVIX (this used to be x3, but now it is just x2 leveraged!). Beta is reduced by 0.3.

Ted - the addition of TVIX is a great idea.  I sell options as another part of my portfolio, so reducing beta (and improving a number of the other metrics), while adding some long vol is a win-win for me.

Great job! Changing the execution to weekly (+20 minute start) and applying the composite risk management model (MaximumUnrealizedProfitPercentPerSecurity = 0.13 % and MaximumDrawdownPercentPerSecurity = 0.17 %) Gets the PSR to 97% and a dd of 15.3% - which for 3x stuff aint too shabby...

...Adding the composite risk model (in my view) is a good secondary backstop against the volatility/bonds hedge which may not always follow past paradigms...:-)

....in fact one can also integrate a small % of UGLD and USLV (5% each) as a complementary yet distinctive portfolio hedge to keep a 95%+ 10 year PSR and bring the max dd down to less than 13%...

Grant thanks for usage of the risk modules 

Hi everyone, I'm still pretty new to algorithmic trading. I've heard that if something seems too good to be true, it probably is. A 25% Compounding annul return seems incredible, especially over a ten year span including the recent market crash. Am I missing something or is this algorithm really just that good?

I understand its good results are linked to past strong increase in both stock prices and long term bonds. If in the future both crash, results could be potentially catastrophic for portfolio with such strong lever. It could happen in the future if short term bond price rise combined with a lasting depression.

As per Wikipedia:

The Federal Reserve board led by Volcker raised the federal funds rate, which had averaged 11.2% in 1979, to a peak of 20% in June 1981. The prime rate rose to 21.5% in 1981 as well, which helped lead to the 1980–1982 recession,[22] in which the national unemployment rate rose to over 10%. Volcker's Federal Reserve board elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of high interest rates on the construction, farming, and industrial sectors, culminating in indebted farmers driving their tractors onto C Street NW in Washington, D.C. and blockading the Eccles Building.[23] US monetary policy eased in 1982, helping lead to a resumption of economic growth.

The long bond suffered a 40% collapse in price at that time. 

Might I suggest that would not have been a good period to have been invested in leveraged bond funds?  The trouble with back testing and back testers is that they usually fail to take the long view, to look back at history and see what has happened and could easily happen again.

One lesson people stubbornly refse to learn is the danger of leverage when it all goes tits up. Remember LTCM!

Another lesson people fail to appreciate is that at times the long bond is 90% or more correlated to US stocks. Stock price collapses have reached levels of 90% or more in the past. The period 1929 to 1933 would not have been an enjoyable time to be invested in geared equity funds. 

It does not take much imagination to see that periods may arise when we could see a catastrophic decline in both equities and bonds.

The motto is: "Study History".

All good points about the danger of backtesting and history.  I think the best solution to that is diversification of non-correlated strategies.  As I said in my original post, 3x leverage is not for the faint of heart.

Also, I think the post GFC era of monetary policy is different than prior to that, as witnessed by the Fed never getting rates above low single digits in recent years, before dropping them again.  Then again there are plenty of cautionary tales about, "this time is different" in the market and they usually end in catastrophe.

Which brings me back to, I think it's best to not try to predict where the market is going, rather I like to diversify across strategies.

Yes, I think that a refusal to predict or to have to predict is absolutely essential. The only protection in investment is diversification - although even that is looking suspect these days!  I find myself wondering whether interest rates will have to rise with the massive amount of sovereign debt being raised or whether we will continue to print money and thus enter a Weimar Republic. 

Yep - I agree - I would be in favor of an active system that ichooses one of GLD, TLT, QQQ based on a technical signal and includes cash as a 4th component if the signals for GLD, TLT and QQQ arnt green. That approach is likely more sustainable in the long run, since correlations/cointegration between GLD,TLT and QQQ/SPY can always change. 

Is anyone up for a colab on this? Backtested since 2005 thus far I have an algo based on the above 4 way system as a PSR of 88%, weekly rebalance. 

I am sorry for asking stupid question.. but in the original post, what does "self.rebalance" do?

It was used only one time..

Juhwan, the call to rebalance is scheduled by means of that self.Schedule.On(...) function call.

TVIX is not actually bought in most algorithms people use it in. This is because its price history is not adjusted for the many reverse splits in the past. I thought I had something great until recently realizing that I had not actually had enough money to buy TVIX at its theoretical price for the first 6 years of my backtest

Hi Grant Forman, I have been working on a similar strategy to this (using Gold, Treasuries and Stocks based on a technical signal and includes cash as a 4th component) both with ETF's and using Futures. Would be more than happy to share knowledge and try a colab.

Good spotting Samuel Schoening.

Using the code below the first trade date I get for TVIX becomes 2/12/2013. RawData should fix the issue as we are not using any indicators with this strategy.

Thanks for sharing Taylor.

This is a really good idea. I've liked leverage ETFs for years, but I haven't modeled a group like this. However this return doesn't show catastrophic drawdowns like in 2008-2009, so that is something to be aware of, but I've done something for that.

In a crash 3x lev ETFs can lose up to 99.9% of their value. Everyone should read "Leverage For The Long Run" to see the implications of holding 3x without a timing signal over a century of SPX: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2741701

Quite simply leverage is a great tool for long term investing as long as you avoid downward volatility, So i took Taylor's first model and built the logic to invest in all 3 leveraged ETFs if SPY>200 SMA, and go to cash if SPY<200SMA. I also used Ted's weighting to give TQQQ 50% allocation when invested to give returns a little boost. 

This I would be very comfortable trading since it gets you out of the market just in case, but returns are still there.

New here so apologies if these questions are dumb

I have been looking for something like this for ages - fascinating work

mark hatlan - apologies my reading of code is not fantastic - when SPY is below 200SMA do you dump the entire portfolio i.e. TQQQ and Bond ETFs and then allocate 100% to AGG until SPY is back above 200SMA

Also, why rebalance every week / 2 weeks and not yearly?