Strategy performance in Indices
Is the strategy that uses ADV/DEC indicator even profitable? Yes, this strategy is highly profitable and goes well beyond the “buy and hold” strategy.
The advantage of this strategy is the fact that the investor exits the stocks/funds at the beginning of correction or the bearish trend and enters immediately after the first signs of recovery appear. Of course, even with this strategy, a 100% return is not guaranteed. A strategy that would guarantee a 100% return does not exist. If anyone claims so, they are misleading you. Only when an investor acknowledges that losses are a part of the investment game and that they need to consider the exit and entry conditions, can they be successful. And this is exactly what my models enable.
“Trading is not about being always right; first, it is about surviving, then it is about making money.”
Let’s take a closer look at some examples of index trading and how the strategy worked out from 2006 to 2021. First example is the S&P 500.
SPX strategy performance 420% return vs. 246 % buy n’ hold return since June 2006- September 2021.
That’s all very well, but what about other indices? Does it also work with other indices, such as QQQ, XLK, XLF, etc.? YES, it does. And why this is the case? Because whenever stock markets are in a bearish or bullish trend, the majority of sectors or nearly all of them move in sync with the current situation in the market. The difference is that some funds or sectors are more profitable than others. Let’s have a look at some examples.
QQQ strategy performance 1760 % return vs. 834 % buy n’ hold return since June 2006- September 2021.
XLK strategy performance 1240 % return vs. 650 buy n’ hold return since June 2006- September 2021.
Financial ETF XLF, lost 85 % during 2008 bear market. Nevertheless XLF strategy performance 288% return vs. 45% buy n’ hold return since June 2006- September 2021.
OK, you convinced me that the strategy works with ETF funds. What about stocks?
The strategy is also very effective with stocks, but it all depends on which stock an investor chooses. If they decide for a stock that is in a bearish trend under 200 daily moving average, then they cannot expect the strategy to work. One needs to choose stocks that generate higher returns than the popular funds, such as SPY, QQQ and the like. Stocks need to be in the growing trend, which means above 50 or 200 simple moving average. When it comes to stocks, the percentage of successful trades is usually below 35 – 50 %. However, this does not mean that the strategy does not generate high returns. Let’s take a look at NVDA, AMD and GOOGL stocks.
Strategy performance in stocks
NVIDIA – NVDA – strategy performance 15712 % return vs. 5285 % buy n’ hold return since June 2006- September 2021.
These are not mistakes. NVDA had excellent performance even with buy n’ hold strategy, although my strategy beat it by almost 3 times. Also win rate with this stock is very high 65 %, this means that the stock was pretty much in sync with the market.
Google – GOOGL – strategy performance 4100 % return vs. 1369 % buy n’ hold return since June 2006- September 2021.
GOOGL had excellent performance also with buy n’ hold strategy, although my strategy beat it by almost 3 times. Also win rate with this stock is very high 68 %, this means that the stock was pretty much in sync with the market.
Advanced micro devices – AMD – strategy performance 3970 % return vs. 235 % buy n’ hold return since June 2006- September 2021.
AMD is an example of a stock where an investor generated much lower returns with the buy n’ hold strategy, but this does not apply to all stocks. The win rate was only 37 %, which means that during a certain period of time this stock was not well correlated with the general market. Nevertheless performance using my strategy outperformed buy n'hold strategy.
OK, this is too good to be true. What’s the catch?
Of course, this strategy does not work miracles. If an investor chooses a poor stock, they cannot expect to generate above-average returns. They need to look for market leaders within the sector that generates higher returns than others at a given moment. And that is more or less it.
“In trading one must know when to sit on ones hands and when to take action. Patience is a virtue that most traders lack.”
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