The MAG7 Strategy using Seasonality & Momentum is a systematic trading approach designed to select and trade stocks within the Magnificent 7 (MAG7) group based on a combination of seasonality and momentum factors. This strategy identifies stocks with strong seasonal trends and increasing momentum to capture short-term market opportunities.
Q-Score Momentum Model
The Q-Score Momentum Model reflects the underlying trend strength of an asset. Our proprietary quant models analyze price action and technical indicators to determine whether an asset exhibits bullish or bearish momentum.
A higher momentum score suggests strong positive price action, while a lower score indicates weakness or potential downside pressure. Traders can use this score to align their positions with prevailing market trends. Our model assigns a score ranging from 0 to 5:
- 0: Bearish Momentum
- 3: Neutral Momentum
- 5: Bullish Momentum
Q-Score Seasonality Model
The Q-Score Seasonality Model assesses the historical performance of an asset over a specific time frame. Using 20 years of historical data, our model examines the price behavior of an asset over the next five days and assigns a score ranging from -5 to 5:
- -5: Low Seasonality. Indicates a Bearish seasonality
- 0: No Seasonality. No significant seasonal trend
- 5: High Seasonality. Indicates a Bullish seasonality
By leveraging the seasonality score, traders can anticipate potential price movements based on past performance and create advanced strategies. Our Seasonality score looks at the trend for the next 5 days.
You can read more about our Q-Score in our dedicated Guide.
Asset Universe
The strategy focuses on the following MAG7 stocks:
- AAPL (Apple)
- MSFT (Microsoft)
- AMZN (Amazon)
- NVDA (Nvidia)
- GOOGL (Alphabet)
- TSLA (Tesla)
- META (Meta Platforms)
Strategy Rules
Entry Conditions:
- Filter MAG7 stocks with seasonality score ≥ 0 and momentum score ≥ 3.
- Rank selected stocks based on momentum score and choose the stock with the highest momentum score.
- If multiple stocks have the same momentum score, select the one with the highest average return in the last month.
- Buy at the market open.
Exit Conditions:
- Sell at the market open the next day unless the same stock remains the top pick.
- If no stocks meet the entry conditions, no position is taken.
Trading Costs:
- $2 per trade (total of $4 per round trip).
Backtesting Period:
- January 1, 2019 – January 31, 2025
Initial Capital:
- $100,000
Performance Summary
Let’s look at the historical backtest of this strategy and look at the performance versus the Benchmark (S&P 500 Index).
Here are some Key Metrics.
We can also look at the return distribution across years comparing this with the SPX.
- The Strategy significantly outperforms the SPX benchmark, achieving a much higher cumulative return (1,971.38%) and CAGR (41.15%).
- Despite its higher volatility (41.94% annualized), the Sharpe (1.40) and Sortino (2.34) ratios indicate strong risk-adjusted returns.
- While the drawdown (-49.13%) is significant, the strategy recovers quickly and maintains strong profitability.
- The high win return in years like 2023 (140.98%) demonstrates its ability to capture trends effectively.
And finally let’s look at the distribution of returns by month historically.
Sensitivity to Initial Capital
The strategy was tested with varying capital levels to evaluate its robustness. Larger capital allocations help mitigate the negative effects of commission costs, leading to more stable and consistent performance over time. Performance across different capital allocations is detailed below.
