Note: While this answers the theoretical idea/question that was given, we do not see this as a “ready to run” strategy. This is an example of finding an edge but does not complete the steps of creating an effective trading plan.
The steps for a full trading plan has several other considerations, including:
- Sizing for each
- Potential filtering for when to trade or not
- Hedging opportunities that don’t add too many transaction costs
- Stress testing for outsized movements not in the sample period