Automated Trading Strategy #73: The 2024 Election Year Strategy
Strategy 73 made $1M over a 15-month backtest period, had a 99.15% win rate and a profit factor of 99 in the 2019-2020 election cycle. Can the same strategy yield similar results today?
There is no guarantee that these strategies will have the same performance in the future. Some may perform worse and some may perform better. We use backtests to compare historical strategy performance. Backtests are based on historical data, not live data, so these results are purely hypothetical. There are no guarantees that this performance will continue in the future. Trading futures is extremely risky. If you trade futures live, be prepared to lose your entire account. We recommend using our strategies in simulated trading until you/we find the holy grail of trade strategy.
As a quick reminder, my goal is to find the holy grail of automated trade strategy. We haven’t found the holy grail yet, but we get closer with every strategy. Click here for the most recent performance chart and links to all strategies.
Strategy 73 is a blend of fundamental and technical analysis. Instead of indicators, Strategy 73 is based on event studies from the NDX (NASDAQ-100 Index). In the same way that ancient people were able to use lunar and solar calendars to forecast seasonal events/cycles, we can use cyclical (weekly, monthly, annual) cash flow trends to our advantage. So instead of looking for the trend, we’re looking for the event or cycle that caused the trend. In particular, we’re looking for overlapping events/cycles that cause a reliable trend for the time period: October 2, 2023 through December 31, 2024.
What trend event should we use?
There is no more reliable event than the US election cycle to boost the four levers of spending (consumer spending, government spending, business investment spending, and net exports). It is a four year cycle that tracks power; from post-, to mid-, to pre- until the big year of spending emerges in the actual election year. 2024 is one of those years.
Stock market researcher Yale Hirsch, publisher of the popular Stock Trader’s Almanac (f. 1967), introduced a similar theory. In addition to the “Santa Claus Rally” in December (self-explanatory) and the “Best Six Months” hypothesis, which suggested that stocks tend to under-perform in the summer months, Hirsch also proposed that government tends to do more spending in years three and four of the first term as a way to secure a second term. And, what about all the spending by those trying to become president. What about all the down ballot initiatives? One of the most powerful positions in the world is at stake—naturally there’s going to be a lot of spending (both above and below board) to grab and/or keep it.
So Strategy 73 is our election year strategy. It is based on multiple cycles and trends found throughout the election cycle. Had we run Strategy 73 in the last election cycle (October 1, 2019 to December 31, 2020) the backtest shows the following performance:
These results are based on a daily chart and run on a basket of equity futures, so you’ll need to pay overnight margin. As you can see, there is no drawdown, however, the intraday drawdown (MAE) is as much as $81,763. That said, the strategy has a 99.15% win rate and net profit of ~$1 million over the given time period.
The results above are what I like to refer to as The Martingale: (unlimited stop loss/limited take profit). It’s a nice, high probability payoff, but you have to have deep pockets. The results below are what I like to refer to as The Natural, which is a limited stop loss and a limited take profit:
Net profit is lower at $826K, and profit factor is much lower at 2.61 on 240 trades, but the Avg MAE is much lower as well, which equates to lower risk.
Here’s the backtest for stocks in the NASDAQ-100 Index using two risk management settings on 100 shares of each stock:
The Martingale (unlimited stop loss/$1K take profit): click here for results
Net income: $916K
Profit Factor: 8.26
Trades: 1091
Avg. % Profitable: 94%
The Natural ($5K stop loss/$5K take profit): click here for results
Net income: $1M
Profit Factor: 3.10
Trades: 424
Avg. % Profitable: 75%
Clearly, this is a profitable strategy to use on equities, even if you can’t afford the Martingale.
Strategy 73 applies this same strategy to the time period October 2, 2023 to December 31, 2024 (the end of the 2024 election cycle). If historical trends serve us well, we should see a similar performance for the coming election cycle.
Strategy 73 Description, Command Structure & Download (C#)
Strategy 73 has a very simple command structure because it is based on daily, weekly, monthly, and annual cycles in the economy rather than statistical indicators. Specifically, we’re looking to take advantage of overlapping cycles to improve probabilities.
Before getting into the details of when to place trades, this is an overview of the results from the event/cycle study: