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NASDAQ 100 Trend Following

Our systematic strategy for NASDAQ 100 stocks is based on a proprietary trend-following algorithm. This is a highly speculative strategy, and the signals are for informational purposes only. The strategy has the potential to generate high returns, but at an elevated left-tail risk. Allocation to this type of strategy should be adjusted accordingly and should be relatively small in a diversified portfolio. No one should rely exclusively on speculative strategies. Click here for information on our weekly diversified strategies.

The strategy generates signals for NASDAQ-100 stocks, and rebalancing occurs at the start of each month if there are new entry/exit signals.

Rebalance date: May 2, 2022, at market open.

Below is a list of open positions. Unlocking the protected content requires Market Signals or All in One premium subscriptions.

2021 performance

Return +43.5%
Drawdown -28%  (May 13, 2021)


Key features of the strategy

  • Systematic equity trend-following, no discretion allowed.
  • Maximum 6 open positions at any given time.
  • Equal allocation is used for position sizing.
  • Strategy continuously adapts to new market conditions.
  • Protection is included from broad market corrections.
  • Protection is included from individual stock corrections.
  • Monthly rebalancing occurs only if there are new signals.
  • Backtest starts in 1995 for a larger sample and lower bias.
  • Backtest takes into account index constituent survivorship bias.


Backtest of Strategy Performance (01/02/1996 to 12/31/2021)

The top chart shows daily NASDAQ-100 index prices and the next chart is the index drawdown profile. The equity chart includes key performance metrics and below is the drawdown profile.

Monthly Performance Table (01/02/1996 to 12/31/2021)

Performance metrics: 01/02/1996 to 12/31/2021

Strategy NASDAQ-100 Index
Annualized return  25.2% 13.6%
Maximum Drawdown (EOD) -44.8% -82.9%
Sharpe Ratio 0.86 0.48
Number of trades 189
Win rate  53.4%
Average days in a trade 158.4
Exposure 75.2%

Notes

-The maximum drawdown of the strategy is 44.3% but this is due to including the dot com bear market in the backtest. Most backtests in blogs and even papers do not include the dot com bear market.

-Survivorship bias in backtesting due to index rebalancing was removed by using series that include all past constituents in the index (Norgate Data.)

-Trading and/or investing in NASDAQ-100 stocks involves high risks and in our opinion strategies that trade these stocks should have a small allocation in a portfolio.

– When starting to follow the strategy, considering only recent signals and ignoring ones that have been active for more than a month may be more appropriate but it depends on the particular signal and whether there has been already a strong uptrend. Always timing of following a strategy matters.


Specific disclaimer: The risks of investing in equities, or equity derivatives, include total loss of capital. At times we may hold positions, long or short, calls or puts, in several ETFs listed in these reports.

Disclaimer: The NASDAQ 100 Trend Following signals (Signals) are provided for informational purposes only and do not constitute investment advice. We do not warrant the accuracy, completeness, fitness, or timeliness for any particular purposes of the Signals. Under no circumstances the Signals should be treated as financial advice. The author of this website is not a registered financial adviser. Before subscribing please read our Disclaimer and Terms and Conditions.

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