When does one use Crocs footwear? Of course, in the summer! The company has a strong seasonal tendency in its business and stock price. This strategy explores that niche.
Inspiration
The company, the creator of unique footwear and a brand, exhibits a strong seasonal tendency in its business and stock price behavior. This strategy explores this niche by historically providing an average return of 12.9% over just two months of holding the stock.
Key Components
Exploration of the company's seasonal business and stock behavior in the summer season.
The strategy is based on specific dates. We completely ignore trends, news, stock valuation, and the overall market situation.
Entry rules
Entry is allowed on the first working day after May 22nd.
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Exit rules
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The exit occurs "On Bar Close" on the first day after July 22nd. So we hold the stocks for exactly 2 months.
Backtest A, $ Money Management
In this variant, we invest a constant amount of $100k. We test the entire period since the introduction of the stock on the stock exchange.
Capital chart for this test:
Test results:
The average annual result was 12.9%, which, when using capital for 16.8% of the year, gives an annualized return of approximately 77%.
Backtest B, % Money Management
In this backtest, we invest in a strategy that constantly uses 100% of the current capital (with an initial capital of $100k). This causes the value of the position to change proportionally with the increase or decrease in capital. The rest of the parameters remain unchanged.
The capital chart for this test looks as follows:
Basic statistics resulting from the test:
The maximum drawdown was 15.47%, but the open drawdown, which is shown below the chart, was 38% during the 2008 financial crisis. Holding this position until July resulted in an actual loss of about 11%. In the hypothetical case of using a stop loss, for example, at 25%, the loss this year would have been 25% instead of the actual 11%. This is another example of how stop loss often does not improve stock strategies.
Applying MM% and reinvesting all profits in the next transaction increases the strategy's income over the years.
Additional information about the strategy
SL & TP
The strategy does not use typical stop loss and take profit levels, although they can potentially be implemented. According to our tests, for most ETF and stock strategies, SL settings worsen the results (see why). The diversification within the strategy portfolio serves as protection against the strong impact of a potential price change of a single stock on the entire portfolio.
Market regime
The strategy has been tested in all major market regimes and, despite its simplicity, it performed well in different periods, both in Bull and Bear markets.
Trading costs
The backtests include trading costs and slippage typical for the given strategy, which occurred in real account tests with an Alpaca broker (detailed study). With a diversified portfolio of stocks and strategies, transaction costs can significantly impact your profit or loss, so take the time to thoroughly test and choose a broker.
Robustness
The strategy was not generated automatically or optimized automatically to match the optimal equity to the historical data (read why). However, it should be noted that this strategy performs best in this short 2-month period.
17 years of history is an acceptable but not very long period for evaluating seasonal strategies. It is recommended to exercise caution and diversify the portfolio of strategies/stocks traded during this period.
Seasonal patterns, by their nature, will not have a very high number of trades, but in this case, further evolution of the pattern can be expected in the coming years. We evaluate seasonal strategies annually, so we may publish additional versions of the strategy here.
Recommended instruments
The primary instrument recommended is CROX.
Pattern Day Trader
The strategy is suitable for use on smaller accounts as well. The holding period is approximately 60 days, which does not meet the requirements for Pattern Day Trading.
Correlation with other strategies
The strategy aligns with consumer behavior trends associated with the spring season. Therefore, it will be correlated with similar trading strategies during this period. Visit the correlation page.
Summary & Strengths and weaknesses of the strategy
The CROX Summer Trip strategy is another good example that seasonality works not only in nature but also in financial markets.
CROX is an interesting example because it is characterized by very large price movements, known as Beta (β). Therefore, by investing the same capital, one can expect a larger price movement in CROX stocks than in, for example, NKE stocks. In the 2 months of the presented pattern, we achieved an average return of 13%, which is exceptional. Of course, price movements also involve larger downward fluctuations, which should be expected.
We do not recommend holding Crox stocks from September to November, as there is also a logical negative pattern during that time (win rate drops to about 45%).
The strategy is very easy to implement, even manually. If you value your time, we suggest entrusting this work to simple and effective algorithms, so you don't have to worry about keeping track of deadlines, especially since by using capital precisely only for part of the year, you can use multiple systems simultaneously.
The main concern that can be raised about seasonality strategies is the number of transactions. Seasonal patterns, by their nature, will never have a very large number of transactions. What matters more in them are:
Consistency of the pattern with nature, business patterns, or consumer behavior patterns.
Representative number of years - we consider a minimum of 15-20 years.
Longer pattern duration. We use patterns that last at least a few weeks, preferably months.
There may be objections to CROX due to its relatively short historical period. Due to this and its high volatility, diversification of the portfolio of strategies/trading stocks is recommended during this period.
There have been many interesting scientific studies on seasonal patterns in financial markets. They confirm that seasonality can often have greater strength than trends. We enjoy studying and exploring them for you. However, we acknowledge that patterns can evolve. Therefore, we review and make any necessary adjustments to our seasonal strategies once a year. The next published versions will be available to you on this website.
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What you receive in the package for this strategy:
SQX file ready to be used on the Algocloud and StrategyQuant platforms.
Pseudocode that describes all the rules in an easy-to-understand way.
If you need the strategy code in formats such as MultiCharts, MT4, or MT5 (MQL), please contact us regarding this matter.
Disclaimer
The results obtained from historical data do not guarantee future outcomes. The effectiveness of a strategy can change over time. Backtesting is a tool that allows for the analysis and evaluation of an investment strategy based on historical data. Various factors, such as market changes or economic conditions, can influence the effectiveness of a strategy over time.
Investing always involves risk. This material is not investment advice. We share our experience and algorithms for educational purposes. We make efforts to ensure that our algorithms are error-free, but neither we nor the tools we use guarantee the absence of technical issues. Any decisions to use a particular strategy are made at your own risk and should be preceded by careful understanding and verification. You should always carefully consider your investment goals and risk tolerance before making investment decisions.
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