My Favorite Way to Trade SPY

My Favorite Way to Trade SPY

May 24, 2023

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Thousands of hours have been wasted, I mean, spent on the topic of buying and holding SPY.

It’s the easy (and only) way to make some money.

Just buy SPY every month and wake up rich.

Unless this happens:

Or this:

Or you happen to get this great dollar-cost-averaging-buy-and-hold advice in 2000 and you don’t make any money for 12 years:

A negative account balance for over decade? Where do I sign up??

Yes, in some cases it works out.

But even if it does work out, the drawdowns are horrifying.

I repeat: even in an obvious Bull Market, buy-and-hold suffers terrible drawdowns.

There’s a way around that, though.

Trade a system. Time the market. And avoid the drawdowns.

Here’s my new favorite way.

Superior SPY System

  • Enter at the Open of the next bar on a Monthly chart when price closes above the 12-month simple moving average 2x in a row.
  • Exit at the Open of the next bar when price closes below the SMA.
  • That’s it.

Seems like it’s kind of similar to buy-and-hold.

Except for one huge thing.

The drawdowns go bye-bye.

Here’s the Equity Curve since 1993:

Hmm, don’t see a lot of valleys there. (Unlike the SPY charts above.)

And here’s the Report:

Take a good look at the Close-to-Close drawdown number.

It’s $432. That’s the hypothetical max drawdown trading $10k of stock each time.

That’s what you’d have to sit through: 4 percent.

Not 30% of your account. Not 50% of your account.

Just a night at a Vegas Strip hotel.

Yes, the intraday drawdown is bigger, but that number is the regression of a trade already in profit. It’s not how much your account goes down from where you start. As you can see in the Curve, we hypothetically never go below our starting point.

So, it begs the question: Who would trade buy-and-hold when something like thisĀ is available?

In our next Newsletter, we’ll look at a fun way to trade QQQ.

Talk to you soon.

 

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.