Inspiration

The SPY Hike strategy is designed to capitalize fully on short-term market moves. It is built on simplicity and a logical yet effective approach to setting entry points and managing positions.

Key Components

• A long position is opened after the market shows strength

• ATR is used to precisely determine the entry level

• A dynamic exit condition ensures a quick and effective exit from the position

Backtest 1 - Fixed $ Money Management

In this test variant, a fixed amount of $100,000 was invested.

• Capital: $100,000

• Testing period: 31 years

• Date range: 1995 – 2025

• Tested instrument: SPY

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, which means that the value of the position changed proportionally to the account balance.

Basic statistics resulting from the test:

Please note that the differences in the results of individual months in the MM$ and MM% tables are due to the separate use of Closed Equity in MM$ vs. Open Equity in MM%.

Trading Strategy Analysis

Net profit and CAGR

Net profit amounted to $1,364,169, representing an annual CAGR of 9%. In comparison, SPY achieved $2,449,918 in the same period with a CAGR of 11%. Although the benchmark now delivers higher absolute returns, SPY Hike focuses on achieving these results with significantly lower market exposure and drawdown.

Drawdown and Return/Open Drawdown Ratio

The strategy achieved a lower drawdown level 33% compared to the benchmark 55%. While the maximum drawdown is still material and should be taken into account when combining this strategy with others, the profit to open drawdown ratio remains attractive at 7.87 (SPY: 5.77).

Exposure

The average exposure of the strategy is 55%, which allows it to be used in parallel with other systems without excessive capital utilization. On this basis, the exposure-adjusted return reaches 16.43% per year, compared with 11% for the benchmark, which highlights the strategy’s efficiency relative to the time it stays invested.

Winning percent

The effective transaction rate was 74%, which still indicates a very high accuracy of the adopted entry and exit assumptions.

SL & TP

The strategy does not use traditional SL/TP orders (here's why I often don't use them). If you feel more comfortable with them, you can implement them after conducting tests.

Market regime

The system has been tested in diverse market regimes; filtering mechanisms support signal selection according to the prevailing market background. You can find more about market regimes here.

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 broker Alpaca 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 was tested over a long time horizon on a single instrument (SPY), with a total of 1,355 trades. The simple structure of rules and a very limited number of parameters (two entry rules and two optional exit rules) positively affect its robustness.

Additionally, a robustness test was conducted by optimizing the applied parameters, which included 84 different strategy parameter variants. All of them ended with a profit (100% positive results), confirming the system's high robustness to parameter changes. The average profit amounted to $109,824.90, and the best result did not exceed the acceptable limits of statistical deviation. The tests also showed an even distribution of results, with no signs of overfitting.

The SPY Hike strategy demonstrates high effectiveness not only on its primary vehicle, SPY, but also across other widely traded ETFs, underscoring its versatility and robustness in varying market conditions. Back-tests on EWJ, VPU, QQQ, and DIA reveal winning percentages ranging from 70.94% to 75.02%. A hit rate above 70% in every case points to the strategy’s strong potential for generating steady profits. In addition, despite the differing characteristics of each instrument, the strategy preserves favorable parameter values, attesting to its robust risk management.

Recommended Instruments

The strategy was specifically designed for ETF SPY.

Optional: EWJ, VPU, QQQ, DIA

Pattern Day Trader

During the test period, the strategy generated 1,355 transactions, of which 413 were classified as day trades. Only 2 cases met the PDT classification conditions for the strategy itself. Although the strategy can still be used without the need for a minimum balance of $25,000 in a real account, using SPY Hike in a portfolio containing other strategies that close transactions on the same day may lead to meeting PDT conditions. Therefore, if your account is below 25k, consider whether this strategy is suitable for your portfolio. You can check all your strategies and the portfolio using our PDT Finder.

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

• High signal accuracy

• Simple and effective entry and exit logic

• Outperforms the benchmark primarily in risk-adjusted terms, despite achieving a lower absolute net profit.

• The strategy performs well even in declining markets.

Weaknesses of the Strategy

• The maximum open drawdown was 33%, which is significantly lower than the benchmark, but still noteworthy.

• There are instances of larger individual losses (the average loss is greater than the average gain), which, however, are usually quickly compensated by the strategy's high win rate.

Summary 

SPY Hike is a strategy with an exceptionally simple structure but solid results. High effectiveness, limited exposure, and a slight advantage over the benchmark in risk-adjusted terms make it a solid candidate for an investment systems 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.