Back in January 2017, Donald Trump had just become President and most pundits were forecasting a year of stock market volatility and interest rate hikes.

As it turned out (despite terrorist attacks, natural disasters and provocative tweets) 2017 finished as one of the least volatile years in history.

Seemingly, annual predictions are mostly a waste of time, although they can be useful for organising your thoughts and interpreting your biases.

It can also be useful to look back to see what worked and what didn’t. In this post I take a look at some of the best trading strategies of 2017.

1. Buy And Hold Bitcoin (HODL)

Obviously, one of the best strategies in 2017 was simply to buy and hold bitcoin as the cryptocurrency was one of the strongest performing assets in the world.

The currency started the year hovering around $950, flirted with $20,000 then finished close to $14,000, a gain of almost 1,400%.

bitcoin chart btc usd top trading strategies of 2017

2. Short Volatility

2017 had its share of volatility inducing events; terror attacks, rate hikes, elections and more.

And yet the VIX stayed low and the stock market moved higher and higher. The S&P 500 even had the nerve to make all-time highs as Kim Jong-Un fired off one of his rockets.

Trading strategies designed to short volatility ETFs such as VXX were some of the best performing trading strategies of 2017 making close to 200% for the year. Equally, an investor could have bought XIV in January for a gain of ~173%.

XIV short volatility ETF

A problem with implementing such strategies is that there is a high risk of ruin unless risk is not managed appropriately. That’s why we recommend to be very careful with this approach and to short volatility on peaks like shown here.

3. Long BA, Short GE

FT columnist John Authers has written a similar piece to this article and in it he describes a beautiful trade of going long Boeing and simultaneously going short GE.

As Authers writes, ‘perfect hindsight saw that GE was suffering from capital misallocation and might need to cut its dividend, while Boeing was in a position to benefit from economic growth and higher defence spending’.

Though they started the year in similar positions with regard to market cap, BA finished the year up 90% while GE sank close to 50% giving the trade a potential gain of 224% according to Authers.

BA cruised higher in 2017

GE sank in 2017 best trading strategies of 2017

4. Buy The Dip

You only need to view the daily chart of the S&P 500 to realise that 2017 was a great year for dip traders. Seemingly, whenever the market dropped down to a nearby support level it was strongly bid back up by institutional and retail investors alike.

This type of strategy tends to work well for developed stock markets and can also be implemented well with ETFs. However, the strategy depends on having a regime filter in order to stay out of the market during bear trends.

In fact, we have a similar strategy called ETF Pullbacks which made 16.43% in 2017 with a maximum drawdown of only -2.04% (simulated performance).

etf pullbacks ytd

Chart: Amibroker

5. Long These Four Winners

There’s no doubt that bitcoin was a standout performer in 2017 but similar gargantuan returns could have been found in the stock market if you were lucky enough to spot them.

Bloomberg recently ran a global screen of equities and found four stocks that were up more than 1000% on the year. They were Pepper Food Service Co. Ltd., Indiabulls Ventures Ltd., HEG Ltd. and the China Investment Fund (up 1,230 %).

top 4 stock perfomers 2017

Closer to home, another strong performer, Siebert Financial Corp (SIEB) gained around 950% primarily on the basis of blockchain plans.

siebert financial corp chart blockchain

6. Global Stock Market Momentum

Seemingly 2017 was a great year for stock market momentum around the world. In fact, every major country ETF in the world finished the year higher and the average return was 28% (in US dollars).

global etf performance

These returns also occurred with relatively shallow drawdowns too – ideal conditions for momentum investors. As an example the Cambria Global Momentum ETF (GMOM) made close to 20% in 2017.

gmom etf performance

One of the advantages of momentum is that it’s a relatively straightforward strategy for investors to implement.

Our free strategy (that buys longer term trends in US stocks) also did well posting a performance of 12.40% with a drawdown of only -3.83% (simulated).

Winning trade in WNC. Chart: Amibroker

Winning trade in WNC. Chart: Amibroker

7. Grinding Gold

The grinding gold strategy uses simple algorithmic rules to trade the precious metal as it slowly grinds higher. The exact rules are as follows:

  1. Gold must open above the low from 3 bars ago.
  2. Gold must close above its second support level.
  3. Go long on next open and hold for 5 bars.

The idea is to avoid extreme conditions and take chunks out of slowly trending moves.

As seen by the equity curve below, the strategy had an excellent 2016 and a strong 2017 where it turned $32,000 into $48,000 trading one contract.

However, the out of sample performance in the period prior to 2016 was more volatile and so more robustness testing needs to be done on this system:

grinding gold strategy

Chart: Build Alpha

8. The Perfect Strategy

Fellow investor – and instructor at Marwood Research – Peter Titus also had a strong year.  Peter has developed his own strategy for trading S&P 500 options called the Perfect Strategy.

The system involves a multi-indicator market model and finished the year up 34.4%. A great result since the inception date of 3/17/2017 and well above buy and hold.

perfect strategy performance table

9. BlueCrest Capital Management

Hedge fund BlueCrest Capital Management, headed by billionaire Michael Platt, was one of the top performing hedge funds in 2017 returning an impressive 54%.

The fund did well in 2016 as well with a near 50% annual return. This comes after the fund closed it’s doors to outside investors in 2015, so that the founders could trade their own capital with fewer restrictions.

10. Short The Shipping Stocks

Shipping companies like DRYS, TOPS and DCIX attracted a lot of scrutiny earlier in the year for their accounting methods and reverse stock splits.

Shorting these stocks was not easy due to the lack of availability of shares. It was risky too, with huge spikes that could easily blow up a margin account. However, all three stocks lost over 99% by the end of the year.

shipping stocks lost money in 2017

Src: Finviz.com

… And The Not So Good

It should be said that despite the calm conditions and upward moving stock markets, 2017 was by no means an easy year for individual investors. Because investing is never easy, even in good conditions.

Many investors got caught out trying to hedge risk believing that volatility would increase. Many traders got head-faked and some blew up on highly leveraged trades.

David Einhorn of Greenlight Capital will have been disappointed with only a 2% gain year to date and many big hedge funds were not much better.

Brevan Howard’s Master Fund was among the poor performers with a loss of -5.4%. Meanwhile trend following fund Clarke Capital was reported in November as being down -31% YTD.

Round Up

As usual, it is always the strongest performers that make the news and hindsight makes the past seem more obvious than it was at the time.

There is no reason why the best strategies of 2017 will be the best strategies of 2018 but it’s always interesting to see what worked and what didn’t.

If you are interested in more trading strategies and education make sure to check out our program at Marwood Research which now contains 20+ trading systems and code.


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