58 Years Of Bear Volatile Market Regime Backtested Results 

We did a massive backtest on the Bear Volatile Market Regime, it seems that everyone is talking about a new bear market, here are some insights from our resident backtesting machine Grant (by the way, give him a follow and thank him on Twitter!)

We had Grant do a monster backtest of the $SPX from 1962 to today, of only the bear regimes, either determined by SQN or by an obvious price action flip. As your skills develop as a trader, by doing these massive backtests you can rely less upon the SQN, a lagging indicator, and more on price action. This is represented in Grants manual backtest as you'll see he entered some markets while not in bear volatile or bear quiet regimes.

I have to say, I could feel Grants frustration through this backtest. He mentioned to me numerous times how hard of a time he was having trading bear regimes on a daily basis.

Over nearly 60 years of trading, this returned 15.77%, who wants that sort of return beside people who refresh ZeroHedge all day long?

Literally, you miss out on the big high return markets where it's nearly impossible to lose money and you only, barely, hold on to the profits you make during the bear markets. I get the angry/smug perma-bear thinking, especially as we are knee-deep in this COVID19 situation, but calling bear markets that never happened day after day since 2009 is missing a lot of positive returns on your money.

If nothing else, at least wait for a Bull Volatile regime to start looking at getting short as that is the ONLY quantifiable requirement for a true market top.

Here's a link to his Backtest

Grants Backtest further confirms our findings of bear regimes:

  • Shorter Time Frames work best
  • Snap Back rallies kill your initial profits
  • Rallies are tradable
  • Holding on too long positions longer than you'd expect is ideal
  • Tighter trail stops on short positions
  • FVBO longs are closer to 4R profit targets vs 1.2-1.5R in other regimes
  • Not trading bear regimes is a fine strategy
  • The high correlation amongst all assets in initial phases of bear volatile, but eventually capital is redistributed to other assets and finding assets in more favorable market regimes produces far better return on investment

This is all stuff you learn how to do in the Systems Building/ Backtesting Mastery course by far the best course I've ever made. 

An interesting thing to see here is that the strategies were horrible until 2001, this was the first bear regime that electronic trading was pervasive.


Personally, I avoid doing much trading in Bear Volatile regimes and instead look for assets in one of the highest performing regimes, the Bull Quiet. 

For example, this long $ZB 30 Year Bond Futures trade. It is in a Bull Quiet regime and as you might know by now, features of a bull quiet are, to just be long, any excuse to be long, BTFD. 

That's it for me today, I'm going to turn it over to Grant to share with you his work on $SPX since 1962 so you too can empathize with him. Take it away Grant. 


What’s up? Grant here to share a tough experience with you all.

I was 14 years old during the GFC. All I remember about the pain people experienced during that time was a conversation with my Dad. He came home and shared with us that he would be buying a duplex investment property. For me this was exciting, but he felt guilty and was visibly stressed.

He went on to tell us that during negotiations the former owner was underwater couldn’t make their payments and they were begging my father for a better offer to the point of busting out in tears. It was a 50% haircut for them. My father didn’t move his price and was willing to walk and look for another deal because the market supply was so large. Normally, a deal like this would make him excited but his internal conflict revealed that others were in a world of hurt. He explained how people are losing their houses and stressed the importance of personal responsibility and having a robust financial situation. The fear on his face did make an imprint but, I still didn’t experience the fear.

As Chris mentioned in his live stream this morning, I have been trading the SPX from 1962 to the present day! To experience a bit of the fear. This is a pretty big task, so I have broken it down into different parts. Why 1962 though… well, Tradingview data is not great prior to 1962 so we started at 1962.

My objective was to go bar by bar from 1962 to today categorize the market regime as it was happening with no prior knowledge to practice trading the bear regimes as I defined them in the moment. This proved to be a very difficult task.

The first challenge was to classify the regime. This is a scientific art and the regime might not persist. We have some great quantitative tools like the SQN. However, this is a lagging indicator. Therefore, I must admit I missed being short the 1987 crash! It happened too fast.

Also, markets can move into a bear regime then rally to a neutral condition causing a fake-out. Bear regime rallies are vicious and the cause for almost all of my pain during this backtest. This happened multiple times. You can look at my notes in the spreadsheet to get an idea.

Next, because there is so much volatility FVBO trades are rare. I mean very rare. This means that our highest probability setup is not available so the odds of making consistent profits in a bear regime on the daily chart is difficult to say the least.

My study shows that Bear Markets are not favorable conditions to trade. The big moves and volatility can look fun but it’s a bad bet. Ego and excitement drive traders to insist on trading Bear Regimes. This doesn’t mean I won’t ever trade Bear Regimes, I will be sizing smaller, picking my spots, and not trading a bear regime is an appropriate protocol so if I miss it no big worry. Look at this chart:

In markets, you make money over time by being long not short. I’m sorry to dampen the mood of all you traders swinging size right now. I was just as frustrated to find this out as you. Maybe we all dream to be in the next big short. I wouldn’t bet on it though.

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If you are interested in this stuff, Have a look at what we have to offer. 

And think about joining us in the Lab, we work on these projects every day together

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