Rocket VB is a breakout strategy with clear rules and strict risk control. It could be a valuable addition to your portfolio.
Inspiration
The Rocket VB strategy draws inspiration from dynamic breakout mechanisms that push prices above historical highs and applies additional strict volume conditions to avoid false signals. Its core idea is to capture the rapid upward move that often follows a consolidation phase and the breach of key resistance levels. Strategies of this kind rest on the observation that explosive breakouts frequently attract institutional investors, helping the move continue.
Key Components
Stockpicker Strategy
Entry through breaking the historical maximum
Breakout confirmation by volume
Precisely defined entry level using a Limit order
Universal exit rules, including SL, TP
Backtest 1 - Fixed $ Money Management
As part of this test variant, a fixed amount of $100,000 was invested, divided proportionally into a maximum of 10 parallel positions.
Initial investment capital: $100,000
Testing period: 31 years
Date range: 1995 - 2025
Tested index: S&P500
In the table, we highlighted the moment when the strategy was published.
Click the button to see the latest backtest:
Backtest 2 - % Money Management
In this variant, 100% of the current capital was used in the strategy, meaning the position value changed in proportion to the account balance.
The equity chart for this test vs. the benchmark (SPY) looks as follows.
Trading Strategy Analysis
Net profit and CAGR
The Rocket VB strategy generated a net profit of $2,070,506, translating into a CAGR of 10.44%. The SPY benchmark reached $2,395,665 with a CAGR of 10.94%
Drawdown and Return/Open Drawdown Ratio
The strategy recorded a Max Open Drawdown of 16.44%, resulting in a Return/Open Drawdown Ratio of 18.85. In comparison, SPY achieved 55.19% and 5.76, respectively.
Exposure
The average exposure of the strategy was 60.75%, indicating moderate capital engagement, leaving room for additional strategies in the portfolio.
Winning percent
The strategy achieved a win rate of 67.26%. This indicates high effectiveness while maintaining strict entry criteria. This is a very high win rate for breakout strategies. The payout ratio, i.e. average win/average loss, is 0.88.
SL & TP
The strategy uses both Stop Loss and Take Profit orders. They are precisely defined, allowing for effective risk and profit management at the level of individual transactions.
Market regime
The strategy has been tested in all basic market regimes and includes filters implemented on this basis. Read more about market regimes.
In practice, this means that the strategy is primarily active during periods with a clearly defined upward trend, and its filters help avoid environments with low-quality trends or heightened structural uncertainty in the market.
Trading costs
The tests included transaction costs and slippage, using data from the broker Alpaca. You can check our latest research on transaction costs using the Alpaca broker here. With a diversified stock portfolio and strategy, transaction costs can determine your profit or loss, so take the time to thoroughly test and choose a broker.
Robustness
The strategy has passed the parameter modification tests. A principle of minimizing the number of parameters was adopted to increase the strategy's robustness. The criteria for selecting parameters included their significant impact on effectiveness and alignment with the strategy's nature.
The robustness study of the strategy was conducted on stocks from the Russell 1000 and Nasdaq 100 indices, with a maximum number of open positions of 40, respectively. A total of 4,151 transactions were executed on the Russell 1000 and 482 transactions on the Nasdaq 100 as part of the tests. Capital management was applied in the %MM formula.
Recommended Instruments
The recommended primary instrument for this strategy on Algocloud Stockpicker is the S&P 500 index companies, which have shown the best historical results. However, the strategy also yields stable results on Nasdaq 100 stocks and Russell 1000.
Correlation
Checking correlations helps avoid duplicative risk in a portfolio and better integrate systems with different profiles. You can find more about correlation here.
Summary & Strengths and Weaknesses
Strengths of the Strategy
Breakout profile - opposite to the reversal profile, which can be an important element in balancing a portfolio
High success rate providing comfort in use
Rigorous entry conditions limiting false signals
The strategy works well on the S&P500, Nasdaq 100, and Russell 1000 indices.
Weaknesses of the Strategy
Exposure at the level of 60.75% is relatively high and may limit the use of capital for other strategies.
Summary
The Rocket VB Strategy is a solid and interesting system based on strong breakout signals using technical analysis. By maintaining entry and exit discipline, it offers an effectiveness level of over 67% and attractive profit/risk parameters, making it a valuable tool in a balanced investment portfolio.
What you get in the package for this strategy:
An eBook describing detailed rules and results of the strategy.
The SQX file is ready to use on the Algocloud and StrategyQuant platforms.
Pseudocode that describes all the rules in an easy-to-understand way.
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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