DeployQuantDrawdown Dip Buyer + 8% Target on XLY
Consumer Discretionary Select Sector SPDR Fund: consumer discretionary stocks, a cyclical read on the US consumer. Backtest 2021-01-04 to 2026-10-02, $10,000 starting capital, computed by the same engine that runs live DeployQuant strategies.
The dip buyer on XLY turned $10,000 into $12,534 between 2021-01-04 and 2026-10-02. That is 4.01% a year, against 6.27% for buying the fund on day one and holding it, which ended at $14,177. The strategy made 3 round trips, all closed at the +8% target, so its win rate is 100%. Its deepest drawdown was 32.73%, shallower than the 39.06% that buy-and-hold went through, and its Sharpe ratio was 0.30 against 0.39 for holding.
The rules are short. When the 20-day drawdown is worse than 10% and the sleeve is flat, buy with 98% of the sleeve. Then a limit order rests at the entry price times 1.08. There is no stop-loss and no time exit. The sleeve was invested on 53.2% of trading days, and the rest of the time it was cash. Because the exit is a fixed target, each trade is worth about 8% if it closes, and what varies is how long it takes. The three trades took 11, 971 and 138 days, and that spread explains most of the result.
XLY is the Consumer Discretionary Select Sector SPDR Fund, a cyclical gauge of the US consumer. The test is one window of 1,444 sessions with daily-decision rules and fills on minute bars. The headline run charges no fees or slippage, and three trades are too few to say anything about the long run. The analysis here sticks to what those three trades did and what the fund did around them.
Year by year
| Year | dip buyer | buy & hold |
|---|---|---|
| 2021 | 7.8% | 28.5% |
| 2022 | −28.9% | −35.7% |
| 2023 | 38.2% | 38.7% |
| 2024 | 9.7% | 26.0% |
| 2025 | 7.8% | 7.3% |
| 2026 | 0.0% | −7.2% |
Month by month
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 0.0% | 0.0% | 7.8% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |
| 2022 | −0.1% | −4.0% | 4.3% | −11.6% | −5.0% | −10.5% | 17.8% | −4.4% | −7.9% | 1.1% | 1.5% | −11.1% |
| 2023 | 14.6% | −2.0% | 3.0% | −1.1% | 2.5% | 11.8% | 2.2% | −1.7% | −5.4% | −5.4% | 10.6% | 6.0% |
| 2024 | −4.3% | 7.7% | −0.1% | −4.4% | 0.2% | 3.8% | 2.7% | −0.2% | 4.5% | 0.0% | 0.0% | 0.0% |
| 2025 | 0.0% | 0.0% | −4.8% | −0.2% | 8.3% | 1.8% | 2.8% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |
| 2026 | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | – | – |
Every trade
dip buyer on XLY made 3 closed round trips, an average hold of 373 days, an average winner of 8.00%. It held a position at the close on 53.2% of trading days.
| Entry | Entry price | Exit | Exit price | Return | Days held |
|---|---|---|---|---|---|
| 2021-03-05 | $74.78 | 2021-03-16 | $80.76 | 8.0% | 11 |
| 2022-01-21 | $88.92 | 2024-09-18 | $96.04 | 8.0% | 971 |
| 2025-03-05 | $102.51 | 2025-07-21 | $110.71 | 8.0% | 138 |
Prices are adjusted for splits and dividends, so they sit below the quotes printed at the time. An open position is marked at the last close.
Largest drawdowns
| Peak | Low point | Depth | Days to low | Recovered | Days to recover |
|---|---|---|---|---|---|
| 2022-03-29 | 2022-12-28 | −32.7% | 274 | 2024-07-03 | 553 |
| 2025-03-05 | 2025-04-08 | −15.9% | 34 | 2025-05-12 | 34 |
| 2022-02-09 | 2022-03-07 | −13.3% | 26 | 2022-03-29 | 22 |
Buy-and-hold's deepest drawdown ran from 2021-11-19 to 2022-12-28 and reached −39.1%.
With trading costs
The headline run fills at the bar price. These runs charge slippage on every fill.
| Slippage per fill | CAGR | Max drawdown | Final value | Sharpe |
|---|---|---|---|---|
| None (headline) | 4.0% | −32.7% | $12,534 | 0.30 |
| 5 basis points | 4.0% | −32.7% | $12,537 | 0.30 |
| 10 basis points | 4.0% | −32.8% | $12,535 | 0.30 |
Changing the parameters
| Version | CAGR | Max drawdown | Round trips | Win rate | Final value |
|---|---|---|---|---|---|
| Published rules | 4.0% | −32.7% | 3 | 100% | $12,534 |
| -7% drawdown / 8% target | 9.5% | −38.5% | 7 | 100% | $16,874 |
| -15% drawdown / 8% target | 2.9% | −32.9% | 2 | 100% | $11,774 |
| -10% drawdown / 6% target | 5.1% | −32.8% | 5 | 100% | $13,331 |
| -10% drawdown / 10% target | 5.1% | −33.0% | 3 | 100% | $13,281 |
How XLY behaved
| Measure | XLY |
|---|---|
| Data in this test | 2021-01-04 to 2026-10-02 (1444 sessions) |
| Total return, buy and hold | 44.7% |
| Annualized volatility | 23.3% |
| Deepest drawdown | −39.7% (2021-11-19 to 2022-12-28) |
| Up days | 53.0% |
| Average daily range | 1.68% |
| Average overnight gap | 0.63% |
| Correlation to SPY | 0.87 |
| Correlation to QQQ | 0.86 |
| Correlation to TLT | 0.11 |
| Sessions above the 200-day average | 65.1% |
| Crossings of the 200-day average | 59 |
| Falls of 10% or more from a 20-day high | 24 |
The rules
Wait for a 10% drawdown from the 20-day high, buy it, and take profit at +8%.
- WHEN the market opens · IF not invested AND the 20-day drawdown is worse than −10% · THEN buy with 98% of the sleeve
- WHILE invested · a managed limit order rests at entry price × 1.08
A rule-based buy-the-dip. The entry is a measured 10% drawdown inside the trailing 20 sessions, and the exit is a resting +8% limit order. Between signals the sleeve sits in cash, so the template can wait months for an entry.
Good for: assets that sell off hard and recover; it trades volatility without chasing strength.
Watch out: no stop-loss: if the dip keeps falling, the position rides it down until the +8% target is reached or the strategy is stopped. Trade counts are low, so single trades dominate results.
How each year played out
The year-by-year gap shows where the strategy lost ground and where it kept it.
- 2021: the strategy returned 7.8% against 28.5% for buy-and-hold. It bought once, on 2021-03-05 at $74.78, and sold on 2021-03-16 at $80.76. The target was hit in 11 days. After that the sleeve sat in cash for the rest of the year while the fund kept climbing, which is the whole 2021 gap.
- 2022: the strategy lost 28.9% against 35.7% for buy-and-hold, and this was one of the three years it came out ahead. It entered on 2022-01-21 at $88.92 and was still holding at the end of 2022. A position that is fully invested through a sector sell-off loses most of what the sector loses. The strategy lost less than the fund because it came in on 2022-01-21 and not at the start of the year.
- 2023: 38.2% against 38.7%. The same position was open the whole year and followed the fund almost exactly. The gap of half a point is the cash fraction and the timing difference from the entry price.
- 2024: 9.7% against 26.0%. The position closed on 2024-09-18 at $96.04 for its +8%, then the sleeve went to cash for the rest of the year, while buy-and-hold stayed invested. The nine months before that, from January to September, are in the month table: -4.3%, 7.7%, -0.1%, -4.4%, 0.2%, 3.8%, 2.7%, -0.2% and 4.5%.
- 2025: 7.8% against 7.3%, a small win. The third trade bought on 2025-03-05 at $102.51 and sold on 2025-07-21 at $110.71.
- 2026: 0.0% against -7.2%. The strategy did not trade at all through 2026-10-02, so the whole gain here is the fund falling while the sleeve stayed in cash.
The strategy beat buy-and-hold in 2022, 2025 and 2026 and trailed it in 2021, 2023 and 2024. The yearly gaps were -20.7, 6.8, -0.5, -16.3, 0.5 and 7.2 points in order. The two large misses, 2021 and 2024, are the two years in which a trade closed at its target and the sleeve then sat in cash while buy-and-hold stayed invested. The large win, 2026, is a year with no trade. None of those gaps comes from picking better entries. They come from how long the sleeve spent invested.
Month by month
The month table shows a lot of zeros. The strategy was flat for long runs: all of 2021 except March, from October 2024 to February 2025, and from August 2025 onward. Long zero stretches pull the average monthly return toward zero and the volatility down, and they are the reason the Sharpe ratio is 0.30 and not worse.
The best month was July 2022 at 17.76%, almost exactly what buy-and-hold made that month at 17.99%. The worst was April 2022 at -11.6% against -11.72% for buy-and-hold. In both cases the strategy sat on the same position as the fund, so the monthly numbers match. The 2022 table reads -0.1%, -4.0%, 4.3%, -11.6%, -5.0%, -10.5%, 17.8%, -4.4%, -7.9%, 1.1%, 1.5% and -11.1%. That is six months worse than -4% in one year, held with no stop.
December 2022 closed with -11.1%, and the low of the whole drawdown came on 2022-12-28. The recovery month in the data is 2023 January at 14.6%.
The three trades
Each trade closed at +8%, and each one looks different from the others.
The first, 2021-03-05 to 2021-03-16, is the clean case. Price fell 10% inside 20 sessions, the rule bought at $74.78, and a rebound carried the fund to $80.76 within 11 days. That is the textbook shape of the setup.
The second is the trade that decides the result. It entered on 2022-01-21 at $88.92 and exited on 2024-09-18 at $96.04, a hold of 971 days, which is the longest hold in the test. For that long stretch, the position was a plain long position in a fund that dropped 39.67% from 2021-11-19 to 2022-12-28 and needed until 2024-11-06 to recover its peak. The strategy's own equity peaked on 2022-03-29, fell 32.73% to 2022-12-28, and recovered on 2024-07-03. The recovery took 553 days from the low. The trade is a winner on paper, and the realized return is 8.01%, but the capital was tied up for more than two and a half years to make it.
The third trade bought on 2025-03-05 at $102.51 and sold on 2025-07-21 at $110.71. It opened right at a peak in the strategy's equity and went through a 15.94% drawdown to 2025-04-08, then recovered by 2025-05-12 and closed 138 days after entry.
The median trade was +8% over 138 days. The average hold was 373 days. Between trades the sleeve sat in cash, which explains why exposure was 53.2% and not near 100%.
A 100% win rate and a 32.73% drawdown can live in the same backtest because the exit is a target and there is no stop. Every trade eventually reached its target, and no trade was closed at a loss, but a position that has not reached its target is carrying a loss on the books for as long as it takes. The dip buyer hub lists this on the caveats: if the dip keeps falling, the position rides it down until the +8% target is reached or the strategy is stopped.
The drawdowns
The three largest drawdowns tell the same story from a different angle.
The first ran from 2022-03-29 to 2022-12-28, a depth of 32.73%, with 274 days to the low and 553 days to recover on 2024-07-03. It is the second trade carried through the 2022 bear market. The second drawdown, 2025-03-05 to 2025-04-08, reached 15.94% in 34 days and recovered in another 34 days, the third trade absorbing the April 2025 sell-off. The third ran from 2022-02-09 to 2022-03-07 at 13.34% and recovered by 2022-03-29, which is the early part of the second trade before the large fall.
Buy-and-hold's worst drawdown ran from 2021-11-19 to 2022-12-28 at 39.06% and recovered on 2024-11-06. A second one ran from 2024-12-17 to 2025-04-08 at 25.64%, recovering 2025-09-12. A third started on 2026-01-12, reached 14.79% by 2026-03-30 and had not recovered by the end of the data. The dip buyer was in cash for that last drawdown and sat it out, because the fall never produced a 10% drop inside a 20-day window while the sleeve was flat.
The strategy's drawdown was 6.33 points shallower than buy-and-hold's. That is a real difference, and it comes from entering after the fund had already fallen from its November 2021 peak. It is a timing effect from one trade. In the next sell-off, where the position goes on right at the top, the outcome could be different.
Trading costs
The cost runs add slippage on each fill. At 5 basis points the result was 4.02% a year, a 32.74% drawdown and $12,537.15. At 10 basis points it was 4.01%, a 32.76% drawdown and $12,535.38. The headline run, with no slippage, ended at $12,533.74.
The cost runs end slightly above the headline run, which looks odd and is worth a plain explanation. With 6 fills, the cost is a tiny share of a $10,000 account. Slippage changes the fill prices a little, so a gap of a few dollars in either direction is possible. At this trade count, costs are close to irrelevant, and the three trades decide everything. A rule that trades a few times in five years pays almost nothing to the market, and this one pays almost nothing.
Changing the parameters
Four variants change one input each. All four kept a 100% win rate, and all four had drawdowns of 32.77% or deeper.
- A -7% drawdown trigger with the same 8% target made 9.54% a year, with a 38.48% drawdown, 7 trades and a final value of $16,874.21. The Sharpe ratio was 0.544. This is the only variant that beat buy-and-hold's 6.27% a year.
- A -15% trigger made 2.89%, with a 32.89% drawdown, 2 trades and $11,773.90. A deeper trigger waits longer and fires less.
- A 6% target with the -10% trigger made 5.14%, with a 32.77% drawdown, 5 trades and $13,331.41.
- A 10% target made 5.07%, with a 32.95% drawdown, 3 trades and $13,280.50.
A single-input change moved the CAGR from 2.89% to 9.54%. That spread is the main finding about this rule on this fund. With so few trades, each added or removed entry changes the answer a lot, and the published parameters are one point in that spread. The -7% variant is the best of the five and the -15% variant the worst, but nothing here shows which of them would be best on other data. This is a sensitivity table of the kind the overfitting answer warns about: the variant that looks best in-window is the one most likely to be a fit to the window.
The drawdown column barely moves. All five runs sit between 32.73% and 38.48%. Moving the target up or down changes how quickly a trade closes, and moving the trigger changes how many trades there are, but neither adds a stop, so the deep fall in 2022 appears in every row.
How XLY behaved
XLY returned 44.67% over the window with 23.32% annualized volatility and a deepest drawdown of 39.67% from 2021-11-19 to 2022-12-28. The longest drawdown lasted 743 sessions. It was up on 53.01% of days, with an average up day of 1.06% and an average down day of -1.13%. The average daily range was 1.68% and the average overnight gap was 0.63%. Overnight moves carried 89.7% of the return and the intraday session 10.3%.
Its best day was 2025-04-09 at 10.79%, and the next was 2022-11-10 at 7.27%. The worst day was 2022-05-18 at -6.54%, followed by 2025-04-03 at -5.97%. The beta to SPY was 1.24, and the correlation to SPY and QQQ was 0.87 and 0.86. The correlation to TLT was 0.11.
Several of these numbers bear on a dip rule. The fund fell 10% or more from a 20-day high on 24 separate occasions, across 98 days. Entry needs a flat sleeve, so events that arrive while the position is open cannot fire a second buy. That is why 24 events produced only 3 entries.
Buying oversold readings did not pay quickly here. After 27 sessions with RSI(14) below 30, the median 5-day forward return was -0.17% and the median 20-day return was -0.78%, against baselines of 0.22% and 0.77% for all sessions. After 152 sessions with RSI(2) below 10, the median 5-day return was 0.74% and the 20-day return was 1.8%. The shorter, sharper signal fared better than the slower one. A rule that buys a 10% drop and waits for 8% is closer to the slow signal, and the data on XLY says the median dip did not snap back within a week or a month.
The fund was above its 200-day average on 65.06% of sessions and crossed it 59 times, which marks a fund that changes direction often. Seasonally, July averaged 4.24% and November 5.12%, while September averaged -1.9% and February -1.56%, from 5 or 6 observations each.
How the rules fit this fund
The strategy trades a fall of 10% from a 20-day high. A sector fund like XLY, at 23.32% volatility, produced 24 such events. A broad index fund would produce fewer, and a leveraged fund many more. The rule wants a fund that falls hard and then recovers within weeks. XLY did that in March 2021 and in the spring of 2025, and it did not do that in 2022, when the fall extended over most of a year.
The fixed +8% exit caps each win. In the 2022 to 2024 trade, the limit order rested for 971 days before it filled. The cap also limits what the strategy keeps in a strong recovery. The fund returned 38.7% in 2023 and the strategy returned 38.2%, but the trade open through that year closed at 8% in total, and the further rise after 2024-09-18 went to buy-and-hold.
Compared with the other templates on XLY, the dip buyer ranked 4th of 12 by CAGR at 4.01%. The weekly 7% target made 10.19% with a 24.73% drawdown, the RSI(2) snapback made 8.2% with 16.62%, and the RSI mean reversion made 7% with 20.65%. Below the dip buyer were the momentum breakout at 3.83%, the monthly cycle at 3.67% with a 43.81% drawdown, and the EMA 12/26 trend at 2.36%. The trend rules finished lowest: the 200-day regime filter at -2.16%, the 3-month momentum at -3.94% and the trend plus trailing stop at -4.4%. The fund's 59 crossings of the 200-day average go a long way toward explaining that.
Across all 59 ETFs, this strategy's median CAGR was 1.33%, and XLY ranked 20th of 59. Within sector funds the median was 6.78%, so XLY sat below its category. SOXX made 27.48% with 19 round trips, XLK made 7.85% with 5, XLF 6.78% with 5, VOX 4.06% with 3 and XLP 1.32% with 1. The count of round trips tracks the result: the funds that fell and recovered more often gave the rule more trades.
Limits of this test
This is one window, 2021-01-04 to 2026-10-02, on one fund, with three closed trades. The headline run fills at the bar price with no fees. The strategy never faced a loss on a closed trade in this sample, and that says nothing about whether a future dip would close at its target. A drop that keeps falling would leave the position open at a loss for as long as it lasts, and the rules have no stop to end it. The results are hypothetical and are not advice to buy or sell any fund.
The XLY page ranks all 12 templates on the same fund, and the dip buyer hub shows the rule across all 59 ETFs.
Build it from blocks (or type it in English), backtest it on 5.7 years of minute data in seconds, tweak any parameter, then paper trade it on live data. No card, no broker needed to start.
Frequently asked questions
Did dip buyer beat buy-and-hold on XLY?
Over 2021-01-04 to 2026-10-02, dip buyer on XLY returned 4.0% annualized vs 6.3% for buy-and-hold: it trailed buy-and-hold by 2.3% per year, with a maximum drawdown 6.3 points shallower than holding (32.7% vs 39.1%).
How many trades did it make?
3 completed round trips over 5.7 years (6 fills), with 100% of round trips closing profitably.
What counts as a 10% dip?
The engine computes the worst peak-to-trough move within the last 20 sessions. When it is deeper than −10%, the entry condition is met. Both the window and the threshold are editable parameters.
Did the dip buyer beat buy-and-hold on XLY?
No. From 2021-01-04 to 2026-10-02 the dip buyer made 4.01% a year and ended at $12,534, while buy-and-hold made 6.27% and ended at $14,177. The strategy had the shallower drawdown, at 32.73% against 39.06%.
How many trades did the dip buyer make on XLY?
Three round trips and 6 fills. Each closed at the +8% target, for a 100% win rate. The holds were 11, 971 and 138 days, and the strategy was invested on 53.2% of trading days.
Why is the drawdown so deep with a 100% win rate?
The strategy has no stop-loss, so a position stays open until it reaches +8%. The 2022 trade was open for 971 days and carried a 32.73% drawdown before it closed in 2024. Wins on closed trades say nothing about losses that are still open.
What happens if I change the dip threshold?
Results move a lot. A -7% trigger made 9.54% a year with 7 trades, and a -15% trigger made 2.89% with 2 trades. With so few trades, each added entry changes the result, so the published setting is one point in a wide range.
Do trading costs change the result?
Barely. With 5 basis points of slippage the final value was $12,537.15 and with 10 it was $12,535.38, against $12,533.74 in the headline run. Six fills in five years leave little for costs to take.
How does XLY rank for this strategy?
XLY ranked 20th of 59 ETFs by CAGR for the dip buyer, and the dip buyer ranked 4th of 12 templates on XLY. Among sector funds the median CAGR for this strategy was 6.78%, and XLY's was 4.01%.
Related
Backtests are hypothetical, computed by DeployQuant's engine on minute-resolution consolidated US market data (2021-01-04 to 2026-10-02, $10,000 starting capital, no margin, no fees or slippage in the headline run; buy-and-hold puts 98% of the account in at the first open, as the templates do) and do not guarantee future results. Nothing on this page is investment advice. Live trading involves risk of loss.