Biotech Sector Trading Strategy — What Is It? (Backtest)

Last Updated on September 22, 2022 by Oddmund Groette

Considered a part of the technology sector, biotech stocks represent an important part of the Nasdaq market, and they tend to have big growth potential. But what are biotech stocks?

Biotech is an industry group that includes companies that research and develop drugs, wearable medical gadgets, and other diagnostic technologies for the treatment of diseases and medical conditions. The biotech industry group presents exciting opportunities for investors.

At the end of the article, we present a backtested biotech trading strategy.

In this post, we take a look at the biotech industry group.

What are biotech stocks?

Biotech stocks are stocks of companies in the biotech industry group, which is considered a part of the technology sector. Stocks in this industry include those of companies that develop drugs and diagnostic technologies for the treatment of diseases and medical conditions. Such products go through rigorous, costly, and time-consuming trials before getting approved by the U.S. Food and Drug Administration (FDA).

While the industry group is dominated by large, well-established corporations that develop a range of drugs and technologies, there are also smaller start-up companies in the industry that are recently gaining traction. Biotech stocks are considered a part of the technology sector, and they represent an important part of the Nasdaq market. The stocks tend to have big growth potential. With the emergence of the Covid-19 pandemic, many biotech companies shifted their focus majorly on Covid-19 vaccines and treatments.

Is biotech a good investment?

Biotech companies develop and market health products, which must be approved by the U.S. Food and Drug Administration before they can be marketed in the US. To get approved, the products usually go through rigorous, costly, and time-consuming trials.

If you are investing in a company with many products in the pipeline, which is often the case with many of them, it may take years before knowing whether a drug under development will be approved and therefore able to make money. As a result, biotech stocks may be good for long-term investment.

Interestingly, many of the best biotech companies have both strong drug candidate pipelines and winning drugs already on the market. Moreover, the COVID-19 pandemic has also created massive opportunities for biotechnology companies that are developing treatments and vaccines for the virus. So, there is no better time to invest in biotech stocks.

Given that their price movement is sometimes quite wild, biotechnology stocks can also be used for short-term trading strategies, as the wild price swings offer good opportunities for traders. The stocks often have big intraday moves, which make them good for day trading. Swing traders and position traders can also enjoy trading biotech stocks, as they often move in strong multi-day and multi-week trends.

How to trade biotech sector or stocks

You can trade individual biotech stocks, especially if you are interested in short-term trading, such as day trading or swing trading.

If you are more interested in long-term investing, it may be better to trade biotech exchange-traded funds (ETFs). Such ETFs invests in a basket of biotech stocks, thereby offering you a ready-made portfolio of biotech stocks. This reduces risk and potentially maximizes profits.

Biotech sector performance

Coming soon

Biotech sector trading strategy (backtest)

A backtested biotech trading strategy is coming soon.

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