Here is a simple, robust method to combine trend-following and seasonality to achieve high return with low exposure and drawdown.
I use the simple filter from Faber 2007: invest when price is above its 10 month simple moving average.
Using bi-annual seasonality from my post series, I require the average return of the upcoming month over the previous 30 years to be greater than a threshold.
I use the “small-value” Fama-French portfolio “value-weighted” from 1984 – 2014 (using 1954 – 1984 for the initial averaging). This portfolio is not directly investible but funds such as Vanguard’s VBR closely approximate.
Using Amibroker for analysis, the profit distribution is positively skewed:
CAR 15%, Exposure 50%, Max. DD 9%
55 trades, average hold: 4 months, 80% winners
Sharpe 1.3, Profit Factor 16
TRADE LIST (partial: 1992 – 2014)
Note: the threshold is cumulative over 15 datapoints i.e. a threshold of 15 equates to 1% average return per month.