Imagine if I told you that all you had to do to get untold riches was to look at yesterday’s return. If it is up, go long. If it is down, go short. That is what Mike Stokes’ Daily Follow Through strategy is about, and it does sound pretty dumb, on paper. Of course we know that this is just a form of an AR(1) model, a returns-based momentum strategy (instead of the usual price-based one), which no serious academic actually believes in enough to trade. That’s why it’s up to the dumb guys like us to test it out.

I will test this on the HSI because the STI is annoying to deal with.

The Daily Follow Through Strategy tested on the HSI turns $1 in 1969 to $695,304 in Jun 30 2011, as compared to $256 for buy and hold:

Summary statistics:

• Buy&Hold: MaxDD -91.5%, Ann. ...