XLP Swing Strategy

XLP: Consumer Staples ETF

Continuing with my study of stocks with the same general characteristics, this high expectancy XLP swing strategy is a Long Only trade. Average Time in Market is 28 days per trade.

Trade Statistics

  • Company Name: Consumer Staples Select SPDR ETF
  • Symbol: XLP
  • Time Period Tested: 1 Jan 2009 – 3 July 2014
  • Number of trading days: 1396
  • Number of trades from this signal: 53
  • Number of winning trades: 33
  • Number of losing trades: 20
  • Average Win per winning trade: $1.48
  • Average Loss per losing trade: -$0.65
  • Max Win per Share traded: $2.16
  • Max Loss per share traded: $0.86

Trade Overview

My goal was to select stocks which are relatively stable in price so as to minimize the opportunity for nasty surprises. I screened for stocks with a 52 Week Price Range between $10-$100, a Market Cap greater than $500M, and Average Daily Volume greater than 1M shares and which pay a dividend.

This trade is a Long Only strategy. The basic setup is to begin watching the stock after it has closed below its 25 Day Simple Moving Average (25D SMA) and then – once it closes above that price – Buy at the Open on the next day.

I set a Stop-Loss trigger of 2.5% and a profit target of 5%. Once either target was hit, I automatically closed the trade at that price. If I used a trailing stop, I could possibly improve the profitability of this trade, but I did not do any testing or calculations with that in mind.

  • The maximum number of consecutive losing trades is 5; the maximum drawdown percentage during the period tested is 10%.
  • The maximum number of consecutive winning trades is 9.
  • The expectancy of this trade is 3.72.

Results of Simulations

I ran a simulation using this strategy starting with a $10,000 account. I traded the maximum number of shares allowed for my account size, traded the signal every time it occurred since February 2009, and plowed all profits back into the trading account. By 18 June 2014, the account value was just over $31,000.

This trade has me in the market 1652 days out of 1977 possible days, (83%). I don’t like being in the market that much, but it’s hard to argue with success.

Given my selection criteria, this proves it is historically a fairly safe and predictable trade. (And of course, just because it worked in the past is absolutely no guarantee it’ll work in the future.)

Counterpoint & Conclusion

The market has been on a 5+ year bull run during the time I ran this simulation, so it would make sense that a long-only strategy would prosper. So is it my strategy that made money, or is it merely the bull market that made money? For the sake of fairness, I compared this Long Only strategy to a “Buy & Hold” strategy over the same period of time.

Over the same time period:

  • “Buy & Hold” would be worth a little less than $21,000, for a profit of $11,322
  • This Long Only system would be worth a little more than $31,000, for a profit of $21,000 over the same period
  • “Buy & Hold” had a max drawdown of 10%
  • Long Only had a max drawdown of 10%

This strategy doubles the return on the ole’ “Buy and Hold” strategy, so the result is not merely the result of market performance or general market conditions.

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