Thank you for subscribing to the Bull Markets email newsletter. Here’s the simple trading strategy that generates an average of 17.2% per year. We include the data in Excel so that you can use it for yourself.
Some people assume that you have to be a genius to consistently beat the stock market in the long run. This simply isn’t true. Working smarter is more important than working harder. Investors and traders who know what they’re doing will consistently beat the benchmark index.
The Medium-Long Term Model yields an average of 30% if you’re using a 2x S&P 500 leveraged ETF like SSO. This model is rather complicated and includes many components.
I’m going to show you a VERY SIMPLE model that can easily outperform buy and hold. The strategy literally has 4 lines:
- Buy and hold SSO (2x leveraged S&P 500 ETF) UNLESS…
- The 1 year change (252 trading days) in the spread between the 10-year yield and the 2-year Treasury yield has increased by more than 0.5% for 5 consecutive days.
- When that happens, shift to 100% cash.
- Shift back to 100% long SSO when the 1 year change in the spread is below +0.5% by 5 consecutive days.
This chart from FRED illustrates the 10 year – 2 year yield curve.
This chart illustrates the year-over-year change in the 10-2 year yield curve.
We explained this in a previous post:
When the yield curve becomes inverted, it is a great indication that the stock market is about to enter into a significant correction or bear market.
However, a yield curve inversion typically PRECEEDS bear markets and recessions. A significantly rising yield differential (10 year – 2 year) usually occurs DURING recessions and bear markets.
This trading strategy essentially applies a yield curve filter to buy-and-hold. Recessionary periods are usually accompanied by a surging yield differential and falling stock prices.
- This strategy yields an AVERAGE of 17.2% per year from April 18, 1988 – April 17, 2018! (30 years)!
- In comparison, the S&P 500 during this period yielded an average of 8.1% per year!
Click here to download the Excel file for the data behind this strategy.
Click here to see our member-only trading models that are even better than this free 17.2% trading model