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In today’s newsletter:

Good morning, traders! Today, we'll explore a bottom-timing strategy and backtest for the S&P 500.

We're also spotlighting a backtesting course. Whether you're refining your skills or starting your trading journey, this course will guide you.

Remember, in the world of trading, knowledge is your most valuable asset – and we're here to supercharge it. Let's dive in!

Bottom Timing Trading Strategy:

The quest for a robust bottom-timing strategy remains a Holy Grail for many traders. Today, we show you a backtest for S&P 500, showing a significant average return of 22% one year after the official start of a recession.

Instead of the elusive goal of pinpointing the exact bottom, this approach advocates for a calculated entry after the onset of a recession, potentially capitalizing on the worst economic conditions already factored into market prices. Look below for detailed trading rules, backtest, and Python code.

Key Insights:

• Economic indicators like GDP and unemployment lag behind, while financial markets are more forward-looking.

• The strategy involves waiting for a certain period after a recession's start before entering the market.

• Backtesting on the S&P 500 shows promising results, with an average one-year post-signal gain of 22%.

Trading Rules

The trading rules of the strategy are simple:

• We buy the S&P 500 nine months after the start of an official recession.

• By official recession, we mean two consecutive quarters of negative GDP growth.

The trading rules are 100% quantified and thus relatively easy to backtest:

Backtest

Here are the S&P 500 levels and trading signals in a chart from 1940 until today:

As you can see, the strategy seems to generate signals near the bottoms of a recession and it seems like stocks rally afterwards, even though signals are few.

Systematic method: This bottom-timing strategy offers a systematic method rather than the traditional reliance on speculative timing.

If you want to learn more about this strategy and get the complete Python code, you can find an article here about it.

Master the Art of Backtesting with Quantified Strategies - Including A Strategy

For traders looking to sharpen their skills, Quantified Strategies offers a Backtesting Course. Backtesting is a must-have tool in any trader's arsenal.

The course is a hands-on approach to testing against historical data. Whether you're a seasoned trader or just starting out, this course might help you gain the knowledge to evaluate the profitability and robustness of your trading ideas.

Course Highlights:

• Understand the essence of backtesting: what it is, its pros and cons, and how to optimize a backtest.

• Learn about in-sample vs. out-of-sample backtesting, strategy performance metrics, and common mistakes.

• Discover how to overcome challenges like survivorship bias and curve fitting.

• Bonus: The course includes a premium trading strategy for practical application.

Why This Course? Backtesting stands out as a quantitative and systematic approach to potentially validate trading strategies. This course “demystifies” the process, offering both theoretical knowledge and some practical tools, including a premium trading strategy for educational purposes.

The included strategy is only for those who purchase before the 29th of January, and the price for the course is 99 USD.

You can read more about the course here.

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Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. It’s all published for informational and educational purposes only. The past performance of any trading system or methodology is not necessarily indicative of future results. We take no responsibility of the correctness. Read the full disclaimer here.