This Simple System Beats the Market

This Simple System Beats the Market

Jan. 10, 2024

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Question: Is it fair to compare systems to the buy-and-hold index fund mantra of financial experts?

They aren’t the same thing and they don’t use the same instrument. Thus, it’s not fair to compare them, right?

Wrong.

The index fund zealots unequivocally tell us there’s nothing else. Nothing else will work and nothing else will do better.

So, everything is fair game.

If any system does better than buying-and-holding [insert favorite index fund here], then our money would make more money doing something else.

They made the rules, not us!

So, here’s a simple system using a long-term chart. We’d only have to make 7 trades since 2010 and we’d more than double the returns of an index fund.

We’ve talked about it before.

Simple Monthly Breakout

  • Monthly chart.
  • Price must close above the 12-month simple moving average (SMA) for two bars in a row. When it does, enter Long.
  • Exit when price closes below the SMA.

And, because we can do anything, we’ll use TQQQ. Some people find that risky but I do not.

Trading $10k worth of stock from February 2010 to January 2024, here is the Equity Curve on TQQQ via Portfolio Architect:

It never went below our initial investment and has risen mightily. Here’s the Report:

And here are some recent trades. Notice it would still be in a winning trade now from an entry last year:

All told, an initial hypothetical investment in this system on TQQQ would have turned $10,000 into $58,000.

How about an index fund?

An index fund would’ve turned $10k into only $54k.

The system is better, even without compounding.

And only needs 7 trades in 14 years.

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.