SPY Long / Cash Strategy
THD Trading System V1.0
A dual-regime SPY/CASH timing model that separates slow structural deterioration from acute drawdown shocks and applies cause-specific recovery rules.
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Growth of $100
System performance includes a 0.02% modeled cost at each position change. While in CASH, the model accrues a 3-month U.S. Treasury bill proxy rather than assuming idle cash earns 0%.
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Trade History
LONG returns use adjusted SPY total-return changes when available. Total Trades counts LONG entries; CASH rows show periods out of the market.
| # | Position | Entry | Entry Price | Exit | Exit Price | SPY Return | Transition Trigger |
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Cash return proxy: 3-month U.S. Treasury bill secondary-market rate (FRED DTB3). The quoted bank-discount rate is converted using a 91-day bill assumption and accrued across calendar days while the system is in CASH. If Treasury-rate data is temporarily unavailable, the dashboard falls back to 0% cash return and displays a warning.
For research and informational use only. Historical backtests are retrospective and do not guarantee future outperformance.
Can the Market Be Outperformed While Taking Less Drawdown Risk?
The THD Trading System was created to test a deliberately difficult proposition: whether structural analysis derived from Informational Physics can identify periods when remaining fully exposed to the market is no longer the highest-coherence position — and whether moving only between market exposure and cash can historically produce both greater compounded returns and smaller drawdowns than continuous market ownership.
Under the normalized historical test shown below, the objective is demonstrably possible. THD V1.0 produced the highest compound annual growth rate, the smallest maximum drawdown and the highest Sharpe ratio among the pure market/cash models tested.
| Pure Market / Cash Model | CAGR | Maximum Drawdown | Sharpe |
|---|---|---|---|
| THD V1.0 Optimized | 12.50% | −18.50% | 0.95 |
| Market Buy & Hold (SPY Proxy) | 10.77% | −55.19% | 0.64 |
| Faber 10-Month SMA | 9.41% | −25.60% | 0.77 |
| 200-Day SMA | 7.81% | −28.19% | 0.69 |
| MAC-US Normalized | 8.38% | −33.72% | 0.67 |
Watch the System Overview
This short overview explains the purpose of the THD Trading System, why Informational Physics is being applied to market structure, and what the historical performance experiment is designed to test.
The significance of this result is not that THD discovered an asset capable of outperforming the market. It did not. Whenever the system is LONG, it holds the same broad-market exposure represented by SPY.
The difference comes from when the system chooses not to remain exposed. Informational Physics analyzes the market as a changing structure under pressure, instability, limits and recovery. THD converts those conditions into explicit LONG and CASH state transitions.
Avoiding part of a major decline produces an asymmetric compounding advantage. A 50% decline requires a subsequent 100% gain simply to recover. A timing model therefore does not need to predict every market movement. It needs to avoid enough destructive compounding while returning to market exposure quickly enough to participate in renewed expansion.
View the Frozen THD V1.0 Trading Rules
The following rules define the frozen THD V1.0 market-state model. The portfolio has only two states: LONG, represented by SPY, or CASH. These rules are disclosed so the model can be independently examined, reproduced, challenged and prospectively tested.
1. Structural Deterioration Exit
The system transitions from LONG to CASH when both structural deterioration conditions remain true for 12 consecutive trading sessions:
- Market close is below 101% of the 216-day simple moving average.
- The 40-day simple moving average is below the 216-day simple moving average.
2. Acute Shock Exit
A separate fast-response pathway is used for sudden market deterioration. The system transitions from LONG to CASH when both conditions remain true for 2 consecutive trading sessions:
- The market has declined at least 8.5% from its 15-day reference high.
- The market close is below the 40-day simple moving average.
3. Recovery After Structural Deterioration
When the system entered CASH through the structural-deterioration pathway, it returns to LONG after:
- Market close remains above the 70-day simple moving average for 3 consecutive trading sessions.
4. Recovery After an Acute Shock
When the system entered CASH through the acute-shock pathway, a faster recovery test is used:
- Market close remains above 101.5% of the 20-day simple moving average for 3 consecutive trading sessions.
5. Portfolio and Performance Assumptions
- The portfolio is either 100% market exposure or 100% cash.
- SPY is used as the investable proxy for broad U.S. equity-market exposure.
- No leverage, short selling, options, sector rotation or alternative risk assets are used.
- A 0.02% modeled transaction cost is applied to each position change.
- Market performance uses adjusted total-return data when available.
- During CASH periods, the live system uses the 3-month U.S. Treasury bill secondary-market rate as a cash-return proxy.
- Treasury-bill returns affect portfolio performance only and do not influence LONG or CASH state decisions.
Frozen-Model Principle
These rules define THD Trading System V1.0. Historical development and optimization occurred before the model was frozen. Prospective evaluation requires applying these same rules to future market data without changing them in response to subsequent performance.
Why This Challenges the Efficient Market Hypothesis
The weak-form Efficient Market Hypothesis holds that information contained in historical market prices is already reflected in current prices and therefore should not provide a persistent, exploitable trading advantage after realistic costs.
THD Trading System directly tests that assumption. It does not rely on private information, analyst forecasts, company fundamentals or advance knowledge of future events. Its state decisions are derived from observable market behavior and the structural relationships contained within that historical information.
The historical THD result therefore represents a direct counterexample candidate to the idea that this type of structural market information is necessarily economically unusable.
It does not by itself disprove the Efficient Market Hypothesis. The current parameters were developed using historical data, which creates the possibility of overfitting and data-mining bias. The stronger test begins after the model is frozen: if the same rules continue to generate superior risk-adjusted performance on genuinely unseen future market data, the evidence against the relevant weak-form efficiency claim becomes substantially stronger.
What This System Is Intended to Demonstrate
THD Trading System V1.0 is a proof-of-possibility experiment testing whether higher long-term market return and lower drawdown are inherently conflicting objectives.
Historical results show that they do not have to be. A binary market/cash system can, under the tested conditions, compound faster than continuous market ownership while experiencing materially less peak-to-trough loss.
The broader Informational Physics hypothesis is that markets contain measurable structural states that are not adequately represented by price direction alone. Pressure, deterioration, transition and recovery may carry usable information about when exposure should be maintained and when it should be temporarily reduced.
The purpose of THD is therefore not to promise future returns. It is to turn that hypothesis into a transparent, measurable and falsifiable market experiment. Historical data establishes the possibility. Prospective performance will determine whether the advantage persists outside the data used to develop the model.