Unveiling the $SPY Holy Grail Strategy v1 - 91x over the last 21 years

After sharing 10 standalone $SPY ( ▼ 0.84% ) strategies over the past few months, I’m thrilled to finally launch Version 1 of the SPY Holy Grail Strategy—a systematic trading approach that has, in backtests, turned $100,000 into $9.1 million over the past 21 years. That’s an impressive 24% annual return, compared to the S&P 500’s ~10%.

My goal has been to publicly share and develop a strategy that can deliver more than double the S&P 500’s long-term return while cutting maximum drawdowns by over half.

DISCLAIMER: This is not financial advice. Results are hypothetical, do not indicate future results, and do not represent returns any investor actually attained. All materials and all associated media are provided for the general public for educational, informational, and entertainment purposes only. We are not securities brokers/dealers, financial/investment advisers, analysts, planners, lawyers, tax advisers or accountants. The information contained herein and all associated media is not and should not be regarded as “marketing material” of any kind or an offer or a recommendation to buy or sell securities. We do not solicit any action. We do not consider the particular investment objectives, financial/legal/tax situations, or needs of individuals, and therefore none of the information we provide should be relied on as tailored or personal advice or recommendation.

How has the $SPY performed?

First, let’s take a look at the performance of our benchmark the $SPY, which tracks the return of the S&P 500, the stock market index tracking the performance of 500 large-cap U.S. companies, representing ~80% of the total market capitalization of U.S. equities. It serves as a benchmark for the U.S. economy and stock market, and is Warren Buffett’s chosen investment vehicle once he passes.

Over the past 21 years, SPY delivered 10.4% annually—a respectable return.

However, this came with an extremely painful 55.2% maximum drawdown during the 2008 crisis. Historically, enduring such large drawdowns often leads average investors to sell out at a loss, missing much of the recovery.

That’s exactly the problem the Holy Grail strategy aims to solve.

Building the Holy Grail Strategy

When creating a combo strategy, we must decide:

1. Which strategies to combine

2. What weights to assign to each

3. How much leverage to use

1️⃣ Selecting the Strategies

Out of the 10 strategies I’ve shared previously, I selected 5 with relatively low drawdowns. While none of them beat the SPY individually, their combination offers a powerful synergy.

Here are the links to the fully disclosed rules and results of these strategies:

• SPY Volume Reverter - article | video

• SPY Dip Surfer - article | video

• SPY Wave Chaser - article | video

• SPY EMA Cross - article | video

• SPY RSI Cross - article | video

2️⃣ Weighting the Strategies

I ran a light optimization to determine the best weight mix.

Note: The total doesn’t add up to 100% because each strategy enters trades at different times. This allows us to utilize available capital more efficiently without forcing full exposure at all times.

3️⃣ How Much Leverage to Use

The combo strategy doesn’t always stay fully invested like a buy-and-hold investor would. Without leverage your exposure to the markets will be <100%. I analyzed the risk-return trade-off of different leverage levels.

• At 100% exposure (no leverage): 13.8% annual return, 15.3% max drawdown, 63.2% average exposure.

• At 150% exposure (max 50% leverage): 18.6% annual return, 18% max drawdown, 84.0% average exposure

• At 200% (max 100% leverage): 24% annual return, 23.4% max drawdown.

You can choose to use any leverage level you’re comfortable with. From a risk-return standpoints (using the MAR ratio as our guide), the optimal level of leverage is likely between 150-200%.

To approximate the exposure of buy and hold (=100% Exposure), I will be using a maximum 100% leverage for this strategy.

But Won’t Publicly Sharing this Strategy Kill its Edge?

Alpha decay is real—too many people following the same strategy can erode its edge, just like over-mining a gold deposit.

But two factors minimize this risk:

1. Liquidity: SPY trades over $30 billion daily. It would take billions in capital using this exact strategy to noticeably affect prices.

2. Variations: There are thousands of possible variations combining different strategies and weights. This reduces the chance of everyone crowding into the exact same trades at the same time.

Backtest Results and Performance

How has the SPY Holy Grail v1 strategy fared over time? We backtested this strategy from January 2nd, 2004 to January 31st, 2025, spanning 21 years. Here are some of the key statistics:

• Total Return: 91.4x (a $100K investment grows to $9.1 million)

• Annualized Return: 24%

• Last 5-Years Annualized Return: 36.5%

• Max Drawdown: -23.4%

• MAR Ratio: 1.02

• Sharpe Ratio: 1.29

• Average Exposure: 105.8%

• 933 trades over 21 years (~4 trades per month)

• Win Rate: 69.5%

• Profit Factor: 3.14

This table presents yearly and monthly percentage returns, along with total annual returns and annual maximum drawdowns (MaxDD). Here are the key takeaways:

• Highest Annual Return: +61.6% (2020)

• Worst Annual Return: -5.3% (2015)

• 20 out of 21 completed years (2004-2024) with positive returns.

Transaction costs are accounted for, including the standard Interactive Brokers commission and a one-tick slippage for stop orders, making results closer to real-world trading experiences.

Performance vs. the SPY