How to build a trading strategy with economic data

Unemployment regime: SPY or Treasuries

Test window

Oct 2021 – Sep 2026

Starting balance

$100,000

Fee per trade

0.1%

Benchmark

SPY

This is the result. The four steps below show how the strategy was built and tested.

1. Describe the idea to Aurora

A prompt like this one describes the strategy in plain English.

“Build a portfolio that follows these rules. Hold SPY while the unemployment rate is at or below its one-year average. Hold SHY (1-3 year Treasuries) while the unemployment rate is above its one-year average. Check at most once a week. Each side is 100% of the portfolio. Backtest it between Oct 1, 2021 and Sep 30, 2026 with $100,000 to start, a 0.1% fee on each trade, SPY as the benchmark.”

2. Check the rules Aurora writes

These are the exact rules the backtest ran.

1. Rule 1

   Hold SPY while the unemployment rate is at or below its one-year average.

2. Rule 2

   Hold SHY (1-3 year Treasuries) while the unemployment rate is above its one-year average.

3. Rule 3

   Check at most once a week. Each side is 100% of the portfolio.

3. Backtest it against SPY after fees

Unemployment comes out monthly, and each release holds until the next. The signal switched often, and fees of $3,663 cut into the result.

Strategy return

+15.8%

SPY return

+88.5%

Largest fall

−22.9%

Sharpe ratio

0.29

Closed trades

180

Fees paid

$3,663

4. Test it on dates it never saw

Next, run a walk-forward test, which freezes the rules and checks them on later dates they never saw. See a walk-forward test on unseen dates

The results describe historical observations. They do not establish live trading performance.

Continue exploring