Trend-Gated Volatility Targeting for Leveraged ETFs

Summary

The Vol-Target Trend Engine describes a risk-allocation approach for leveraged index ETFs. A 200-day simple moving average acts as a regime gate: the strategy holds exposure only when price is above the average and closes positions when the regime turns off. While the gate is on, exposure is sized as the lower of full equity exposure or a target annualized volatility divided by realized volatility, using daily returns over a configurable lookback.

Position changes are considered weekly, when the regime flips, or when exposure exceeds a specified threshold; a tolerance band limits smaller adjustments, with an optional immediate de-risk rule. The script comments report that a faster daily variant more than doubled turnover and had lower backtest returns and worse drawdown, but provide no dates or market details for that comparison in the supplied excerpt. These claims are not independently substantiated here. The method is described for leveraged ETFs, and its moving-average gate, volatility estimate, and rebalance rules may behave differently across assets and market conditions.

Key ideas

• The strategy uses a long-term moving average to decide whether leveraged ETF exposure is permitted.
• When the regime is on, target exposure falls as measured realized volatility rises, up to a full-equity cap.
• Weekly rebalancing and a tolerance band are intended to limit unnecessary turnover.
• The script comments report worse performance and drawdown for a faster daily de-risking variant, without supplying supporting test details.
• The approach allocates risk rather than predicting individual entry signals, and depends on the chosen volatility and regime measures.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.