From now on I’m going to show you simple but effective quantitative trading models for free here on the blog. The membership program will include the Medium-Long Term Model and significantly improved versions of these free models.
Today’s model is a pure technical trading strategy (i.e. only uses price data). I analyzed the effectiveness of “death crosses” and “golden crosses” in previous studies. The conclusion was simple: death crosses aren’t consistently bearish for the stock market, while the golden cross is a useful long term bullish sign.
This model is very simple. It only has 2 lines:
- Sell SSO (S&P 500 2x leveraged ETF) when the S&P 500 makes a “death cross”.
- Buy SSO when the S&P 500 makes a “golden cross”, AND… the 50sma remains above its 200sma for 5 consecutive trading days.
This strategy yields an average of 14% per year from 1950 to present.
In comparison, simply buying and holding SSO from 1950 to present would yield a 13.2% return.
It sounds like this strategy isn’t a big improvement vs. “buy and hold”. But here’s the main advantage behind this model: it is less volatile than buying and holding SSO.
- This strategy underperforms “buy and hold” during a bull market because you miss out on some parts of the bull market. (Remember what the study said: the “death cross” is more often a bullish sign than a bearish sign during a bear market).
- This strategy outperforms buy and hold during a bear market because you sit in cash while “buy and hold” gets clobbered.
This model prevents you from losing a lot of money during bear markets. Leveraged ETFs like SSO can lose 90%+ of their value during bear markets. And while these leveraged ETFs will eventually recover during the next bull market, it’s still a gut wrenching experience to buy and hold leveraged ETFs during bear markets. This model helps you avoid that gut wrenching experience. It’s hard to believe in buy and hold when you watch 90%+ of your net worth evaporate in 1-2 years.
Since bear markets destroy leveraged ETFs like SSO, this strategy allows you to sidestep the bulk of bear markets, even though there are some false signals.
*This strategy is purely technical. It assumes that you have no other way of predicting and sidestepping bear markets.
Click here to download the backtest and data in Excel.
I include the historical BUY/SELL dates and prices.
Please share this trading model on social media. I would really appreciate it if you could help spread the word 🙂