You might have heard that buying an all-time high is a great trading strategy with a positive chance of success. I agree!
For the purposes of trading, “all time” means five years.
The reason why it is in my mind today is because the U.S. Dollar Index reached an all-time high today.
Another reason is that the S&P 500 Index – the major U.S. equity index and by extension, the most important of all the global equity indices – is very close to reaching an all-time high. It hit a price of 2192.4 a few months ago (in August) and is not far off that level, reaching 2187.2 earlier today. It may well go on to make a new all-time high soon, possibly even later today.
It is true that there can be problems with breakout strategies, especially in Forex, and any strategy as simple as “buy the all-time high” is going to be some type of breakout strategy. A better way of managing it could be to seek to take only long USD trades when the U.S. Dollar Index is making a new all-time today, or has done so very recently.
To try to show you how well a “buy the all-time high” strategy can work, here is a little back test of a fast “long only” strategy using the 5-year high price. Buy the S&P 500 Index at the close of a day when it makes a new 5-year high and hold for 1 week.
Since 1971, it happened on 820 days, giving an average return (excluding transaction costs) of 0.65%. 54.27% of all the trades were winning trades. That is a total return of approximately 533%.