I've been backtesting a few systems mostly on QQQ and SMH (mostly for their high liquidity and high volatility -- the same reasons everyone trades them) but I'm not sure how to interpret the results.
Over the historical period for both the buy and hold return is very poor (obviously) since most of it was during a pretty brutal bear market. However I'm not sure how to interpret system backtesting results for this period.
On one hand a system that can make money at all during that large a decline (especially a long only system!) must be decent. However, it partially benefits from lower exposure, only being in the market 25% of the time. This low exposure then becomes a slight underperformance during a rally like the one in 2003.
What are people's thoughts on a system like this and on backtesting during the bear market in general? I'm thinking maybe if you filter for bull/bear (using 200 day SMA?) then maybe you can decide when to buy/hold vs. trading a system that doesn't do as well in bull markets.