All-Time High Trading Strategy For Stocks (Frequency)

The stock market has been on fire for the last decade, causing the impression that it reached an all-time high almost every day. However, this is only a perception because all-time highs are quite uncommon. Let’s make an all-time high strategy for stocks.

The S&P 500 spent less than a tenth of its time at all-time highs since 1950. The average number of all-time highs per year is almost 21. But despite this, it has produced decent returns for investors. 

In this article, we are going to look at how often the S&P 500 is at all-time highs, what this means to investors, and develop and backtest a trading strategy that takes advantage of all-time highs. We also remind you that we have written hundreds of other valid trading strategies.

How often does the market hit all-time high?

From 1950 till 2022, the S&P 500 has set 1526 all-time highs along its path to the current level. That is an average of just under 21 times per year or about 8.3% of all trading days.

Here is a chart that shows every time the S&P 500 hit an all-time high by year since:

How often does the market hit All-Time High

In other words, the market traded UNDER at its all-time high 91.7% of the time. This is a mind-blowing piece of data considering the return it has achieved during this time frame. Since 1950, the S&P 500 has compounded money at a 7.67% CAGR (no dividends, you can probably add about 2% including dividends).

The longest streak of consecutive years with the S&P 500 setting at least one all-time high is twelve, beginning in 1989 and finishing in 2000. The market has currently been making all-time highs for ten consecutive years, but 2023 threatens this streak.

What does an All-Time High in stocks mean for investors?

Generally, when the market reaches a new all-time high, it means that business is booming, earnings are up, momentum is high, and the market sentiment is high (perhaps euphoric). It also plays a very important psychological role because it increases the bullish sentiment among traders and investors since they are all making money. We believe FOMO – the fear of missing out – is also in play.

All-Time high and the inflation rate – adjusted data

We said generally because this is not always true. The stock market is constantly making new highs in countries with high inflation, such as Argentina or Zimbabwe. But if we were to adjust the inflation price, or even use US dollars instead of the local currency, you would see that the market is a steep drawdown from its high.

However, after an all-time high, the market tends to perform well during the following year rather than correcting and falling. This is the trend following and momentum in its maximum expression.

All-Time high trading strategy – backtest and performance

Can we develop a strategy to trade the All-Time high profitably? We are going to try. The idea we come up with is pretty simple.

These are the trading rules:

Trading Rules


We backtested the strategy in the S&P 500. The data is daily and not adjusted for dividends. Here is the equity curve of the strategy:

All-time high trading strategy example

That doesn’t look good. Here are some metrics and statistics:

  • CAGR is 3.20% (buy and hold 7.67%)
  • Time spent in the market is 43.2%
  • Risk-adjusted return is 7.40% (CAGR divided by time spent in the market)
  • Maximum drawdown is 33.75% (56.78%)

The strategy per se is not bad. It is another way of doing trend following. It is invested less than half of the time and has lower drawdowns.

However, is there anything that catches your eye in the graph of the backtest above? What about those long flat lines in the equity curve? Couldn’t we invest our cash to earn an extra return?

Let’s say that instead of selling and holding cash during periods when the S&P 500 is 5% below its all-time high, we earned a return on that money of 3% per year, capitalized daily. We are being conservative here, given that rates were much higher before 2000. Nevertheless, how would the strategy perform with this bit of change?

All-time high trading strategy backtest and performance

That’s a substantial difference. Here are the new metrics and statistics of the strategy:

  • CAGR is 4.40% (Buy and hold 7.67%)
  • Time spent in the market is 43.2%
  • Risk-adjusted return 10.18%
  • Maximum drawdown is 25.11% (56.78%)

The key to this type of strategy is what we do with the cash when the S&P 500 is more than 5% below its all-time high. As we have always promoted on this website, you need diversification, either by assets, market directions, or different trading strategies.

All-Time high trading strategy for stocks – conclusion

To sum up, the S&P 500 spends about 8.3% of trading days at All-Time highs. This may not seem like a relevant statistic, but it can be used to develop a trading strategy. However, the key for the strategy to be profitable is what we do when the S&P 500 is not at its all-time high.


What is the significance of an all-time high in the stock market?

Reaching an all-time high suggests a thriving market with increased business activity, higher earnings, positive momentum, and elevated market sentiment. It often reflects a bullish trend and can contribute to the fear of missing out (FOMO) among investors.

What is the All-Time High trading strategy, and how does it work?

The All-Time High trading strategy involves buying the S&P 500 when it is less than 5% away from its all-time high and selling when it falls more than 5% from its peak. This strategy aims to capitalize on trend following and momentum. Generally, after reaching an all-time high, the market tends to perform well in the following year.

What were the results of backtesting the All-Time High trading strategy in the S&P 500?

The backtested strategy had a Compound Annual Growth Rate (CAGR) of 3.20%, with 43.2% of time spent in the market. However, the risk-adjusted return was 7.40%, and the maximum drawdown was 33.75%. While not as high as the buy-and-hold strategy, it offers a different approach with lower drawdowns.

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