Tactical Leveraged Trend Rotation compounded at +18.2% a year from 2016-10-26 to 2026-10-07, with a worst drawdown of -29.4% (high drawdown). It ranks 3 of 6 re-run strategies by drawdown, shallowest first.
The rule in one line: The strategy holds leveraged equity ETFs only in a confirmed bull market: SPY above both its 125-day and 200-day moving averages and the VIX below 28.
| Worst drop (max drawdown) | -29.4% |
|---|---|
| Yearly growth (CAGR) | +18.2% |
| Return per unit of risk (Sharpe) | 0.84 |
| Total return | +428.1% |
| S&P 500 (SPY), same period | +325.8% |
| Return ÷ drawdown | 0.62 |
| Period | 2016-10-26 – 2026-10-07 (9.9 years) |
| Risk tier | High drawdown |
| Drawdown rank | 3 / 6 |
Backtest = historical simulation on past prices, not real trading.
Equity curve of a $10,000 start, with SPY dashed.
The strategy holds leveraged equity ETFs only in a confirmed bull market: SPY above both its 125-day and 200-day moving averages and the VIX below 28. On the first trading day of each month it ranks four index leveraged ETFs (TQQQ, UPRO, SPXL and TNA) by their three-month return divided by their recent annualized volatility, using completed closes and trading at the next open.
The top two funds with positive scores each get a 50% slot, and an empty slot goes to short Treasuries (SHY). When two funds qualify, both are cut to 75% of their slot unless SPY is above its 20-day average and that average is above the 200-day average. Each fund is then scaled toward 40% annualized volatility, with the trimmed amount moved to SHY. Outside a bull market, the strategy holds whichever of long Treasuries (TLT), gold (GLD) or SHY had the best positive one-month return, or SHY.
Daily checks override the monthly plan. A 10% account drawdown means SHY for at least 21 trading days; an 18% loss since January means SHY until year-end; a fund closing 16% below its post-entry high is swapped for SHY. A VIX jump of 50% in three days (with VIX above 20), a 5% weekly SPY drop or a broken bull signal moves everything to SHY until the next monthly review.
| Universe | Bull: TQQQ, UPRO, SPXL, TNA (index 3x only; SOXL removed 2026-10-08 as a hindsight pick); safe havens: TLT, GLD, SHY; cash: SHY; signals: SPY and VIX; benchmark: SPY. |
|---|---|
| Rebalancing | Monthly on the first trading day. Breakers, trailing stops, VIX spike, weekly crash and regime exits are checked every day. |
| Execution | Signals use completed daily closes only; orders fill at the next session's open and positions are marked at the close. |
| Trading costs | 0.25% per side on every dollar bought or sold (about 0.50% for a full switch). No separate slippage or spread model. |
| Leverage | Up to two 3x ETFs at 50% slots, cut to 75% in weaker trends and scaled to a 40% volatility target; remainder in SHY. No margin. |
| Risk controls | Account down 10%: SHY at least 21 days. Down 18% since January: SHY to year-end. Fund 16% off its high: SHY. VIX +50% in three days, SPY -5% weekly, or trend break: SHY. |
| Price data | Public daily price data adjusted for dividends and splits (open rescaled to match). Cash-like ETFs earn their adjusted market return. |
| Known limitations | After a crash, VIX or trend exit it waits for the next month to re-enter, even if markets recover sooner. Hand-picked surviving ETFs; parameters chosen on the same 10-year window. |
Across the 9 full calendar years in the test, the strategy beat SPY in 5. Its best year was 2017 (+66.2% against SPY's +21.7%) and its weakest was 2022 (-19.4% against -18.2%). It finished 2 full years with a loss (2018, 2022). In 2018, when SPY fell 4.6%, the strategy returned -0.6%. In 2022, when SPY fell 18.2%, the strategy returned -19.4%.
SPY fell more than 10% from a high 3 times in this window (2018-09-20 to 2018-12-24: SPY -19.4%, strategy -12.8%; 2020-02-19 to 2020-03-23: SPY -33.7%, strategy +2.1%; 2022-01-03 to 2022-10-12: SPY -24.5%, strategy -19.8%). The strategy lost less than the index in 3 of 3 of those declines, so its rules did act as a brake when the whole market sold off.
Labelled by SPY's trend (above a rising 200-day average = uptrend, below a falling one = downtrend, anything else = sideways), the strategy averaged an annualized +23.2% on uptrend days (79% of the test) against SPY's +23.4%, so it trailed the index in steady rising markets. On sideways days (8%), which is where trend breaks and the first leg of sell-offs land, it averaged +6.4% against SPY's -77.2%; on downtrend days (10%), which include the sharp rebounds inside bear markets, -4.4% against +27.1%. Its losses were most concentrated in uptrend stretches: 90% of all losing-day losses came on 79% of the days.
On days SPY rose, the strategy captured 104% of the index's gains; on days SPY fell, it took 100% of the index's losses, an amplified profile that moved more than the index in both directions. 61% of months ended positive; the best month was 2020-08 (+18.4%) and the worst was 2019-05 (-14.3%).
The deepest drawdown on the daily curve ran from a peak on 2021-09-03 to a trough on 2023-03-08 (about 18 months of decline), a fall of -29.4%. Over the same stretch SPY returned -9.9%, so the loss came while the market itself was falling. It regained the previous high on 2023-07-13, about 22 months after the peak.
| Year | Strategy | SPY | Difference |
|---|---|---|---|
| 2016 (partial) | +0.9% | +5.2% | -4.3% |
| 2017 | +66.2% | +21.7% | +44.5% |
| 2018 | -0.6% | -4.6% | +4.0% |
| 2019 | +16.9% | +31.2% | -14.3% |
| 2020 | +34.5% | +18.3% | +16.2% |
| 2021 | +14.7% | +28.7% | -14.0% |
| 2022 | -19.4% | -18.2% | -1.2% |
| 2023 | +38.5% | +26.2% | +12.3% |
| 2024 | +38.3% | +24.9% | +13.4% |
| 2025 | +8.4% | +17.7% | -9.3% |
| 2026 (partial) | +5.1% | +14.9% | -9.8% |
| Peak | Trough | Recovered | Fall | SPY, peak to trough |
|---|---|---|---|---|
| 2021-09-03 | 2023-03-08 | 2023-07-13 | -29.4% | -9.9% |
| 2018-01-26 | 2019-03-08 | 2020-01-16 | -25.9% | -2.4% |
| 2023-07-19 | 2023-12-06 | 2024-01-24 | -20.2% | +0.3% |
| SPY trend | Share of days | Strategy, annualized average | SPY, annualized average |
|---|---|---|---|
| Uptrend | 79% | +23.2% | +23.4% |
| Sideways | 8% | +6.4% | -77.2% |
| Downtrend | 10% | -4.4% | +27.1% |
Computed from the daily equity curve of the same re-run (2016-10-26 to 2026-10-07). Trend labels classify each day after the fact (SPY above a rising 200-day average = uptrend, below a falling one = downtrend, otherwise sideways); they describe the past and are not a trading signal. Annualized averages are the mean daily return in that group times 252.
The worst peak-to-trough fall was -29.4%: a $10,000 account would have dropped to about $7,059 at that point before recovering. The +18.2% CAGR is the annual rate that compounds the start value into the end value over 9.9 years; the return-to-drawdown ratio of 0.62 says how many points of annual return each point of worst-case loss bought. Compare strategies on that pair, not on CAGR alone.
Re-run on 2026-10-08 with the strategy's current code on historical prices — a systematic take on Leveraged ETF Rotation. Numbers change when the strategy is re-run on newer data. The full write-up explains the rules.
All strategy backtests, lowest drawdown first
Disclosure. Backtests are hypothetical simulations on historical data. They do not include every real-world cost, are not live results, and do not guarantee future returns. Educational research only, not investment advice.