Fair Value Strategy Ultimate

2023년 1월 19일

This is a strategy using an index's (SPX, NDX, RUT) Fair Value derived from Net Liquidity.

Net Liquidity function is simply: Fed Balance Sheet - Treasury General Account - Reverse Repo Balance

Formula for calculating the fair value of and Index using Net Liquidity looks like this: net_liquidity/1000000000/scalar - subtractor

The Index Fair Value is then subtracted from the Index value which creates an oscillating diff value.

When diff is greater than the overbought threshold, Index is considered overbought and we go short/sell.

When diff is less than the oversold signal, Index is considered oversold and we cover/buy.

The net liquidity values I calculate outside of TradingView. If you'd like the strategy to work for future dates, you'll need to update the reference to my NetLiquidityLibrary, which I update daily.

Parameters:

Index: SPX, NDX, RUT

Strategy: Short Only, Long Only, Long/Short

Inverse (bool): check if using an inverse ETF to go long instead of short.

Scalar (float)

Subtractor (int)

Overbought Threshold (int)

Oversold Threshold (int)

Start After Date: When the strategy should start trading

Close Date: Day to close open trades. I just like it to get complete results rather than the strategy ending with open trades.

Optimal Parameters:

I've optimized the parameters for each index using the python backtesting library and they are as follows =>

SPX
Scalar: 1.1
Subtractor: 1425
OB Threshold: 0
OS Threshold: -175

NDX
Scalar: 0.5
Subtractor: 250
OB Threshold: 0
OS Threshold: -25

RUT
Scalar: 3.2
Subtractor: 50
OB Threshold: 25
OS Threshold: -25