We have shown that higher retirement savings are possible with our iM(MAC-Vang) and iM(MAC-CREF) models that dynamically adjust bond/stock asset allocation using Vanguard or TIAA-CREF Funds respectively. We make use of the MAC-system to determine the allocation switch points depending on market trends. The backtest of the MAC-system stretches back almost 65 years. We are also proponents that market models should have a minimum number of variables to avoid over-optimization and possible future model breakdown. The MAC-system is such a minimized system and its robustness has been confirmed by an independent party.
In October 2014, Jeff Swanson of System Trader Success investigated the question: Is the MAC-System Overly Optimized? He concludes:
It appears this trading model is not overly optimized. Through my simple testing I was able to demonstrate that the core of the MAC trading system shows profitability over a wide range of values. In fact, some combinations produce better results. The default values do not appear overly optimized. Note, many different values appear to work just fine.
It’s my opinion the MAC system will likely work into the future. It works because it positions a trader into bull trends as seen from 2009 to today (late 2014) while more importantly, it gets a trader out of the market during prolonged bear markets such as seen in 2007-2008. The exact parameters don’t matter! You can use a 260 SMA or a 180 SMA for the major trend filter. You can enter the market using a 40 EMA or a 20 EMA. You can use a factor of 1.001 or .0098 as the buy threshold. They all produce positive results which speaks to the robustness of the system.
Hi Georg. I’m still very interested in this strategy. Mainly because it reduces the volatility. What are your opinions on leverage to enhance the performance? Imagine buying MiniFuturues with 2x or 3x leverage on SP500 and use this strategy (no rebalancing products). The costs are usually 3 months LIBOR + 2,5% for this leverage and requires no additional security.
We can’t give an opinion whether the proposed strategy will work well with the MAC-US system or not because we are not Investment Advisers.
In this article https://imarketsignals.com/2014/backtesting-the-mac-system/ is a listing of all the trade dates since 1950 which one could use to test the strategy.