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Narrative
Diffusion
by Trado Research VERIFIED
+118%
Avg return per narrative
+414.7%
Best (AI '23–'24)
5/6
Profitable narratives
13.86
Best Calmar (AI)
Performance
Holdings
Diffusion Scanner
Methodology
!
This backtest studies completed narratives — not a live buy list.
Every narrative below already played out, so returns benefit from knowing which narratives mattered. The live edge depends entirely on detecting the next narrative early — which this backtest does not prove. Chasing a mature narrative (e.g. AI in 2026, already past Tier 1→Tier 2 rotation) is late. Treat this as a framework for entering new narratives at their start, not a signal to buy today's headline trade.
Portfolio Value
+414.7%
AI Narrative · Jan 2023 – Apr 2024 · $10k → $51.5k
AI
EV
WFH
→ T2 → T3 Exit Jan '23 Jun '23 Dec '23 Apr '24
Strategy
SPY (+102%)
Tier rotation
Backtest History — All Narratives
PeriodNarrativeReturnCalmar
2020–2021 WFH / Cloud +86.2% 5.29
2020–2022 EV Revolution +103.5% 6.33
2021–2022 Reopening Trade −9.5% −0.47
2021–2022 Energy / Inflation +50.9% 4.65
2022–2024 GLP-1 / Obesity +65.3% 1.53
2023–2024 AI Revolution +414.7% 13.86
Risk metrics (avg across 5 profitable narratives)
−23.1%
Avg Max Drawdown
6.33
Avg Calmar Ratio
4/yr
Avg trades per narrative
Monthly
Rebalance frequency
Source: backtest/backtest_narrative_diffusion.py. Re-run to refresh. Reopening Trade (−9.5%) excluded from avg.
Active Narrative: AI / Agents  ·  NFS 87.9
Currently in Tier 2 — Power & Energy plays
Current Holdings
Ticker Name Tier Entry Since entry
VST
Vistra Corp
 T2
Jun 1, 2023
+312.4%
CEG
Constellation Energy
 T2
Jun 1, 2023
+189.7%
NRG
NRG Energy
 T2
Jun 1, 2023
+98.2%
Watching (Tier 3 — Not yet entered)
TickerNameTier30d Mom
EQIX
Equinix
 T3
+1.2%
DLR
Digital Realty
 T3
−0.8%
Recent Trades
↗
Rotated T1 → T2  ·  NVDA/AMD → VST/CEG/NRG
Jun 1, 2023  ·  Trigger: NVDA up +132% from entry, power stocks 30d mom > 2%
+132.2%
↗
Rotated T2 → T3  ·  Power → Data Center
Dec 1, 2023  ·  Trigger: power basket up +45.7%, EQIX/DLR 30d mom positive
+45.7%
⚠
Narrative Death Exit  ·  EQIX/DLR/SMCI
Apr 19, 2024  ·  NVDA dropped >20% from Nov 2023 peak (SMCI collapse)
+52.1%
Diffusion Scanner  ·  which themes are early vs. already late
Scan date: —
For each theme: Tier-1 leaders are the headline names; Tier-2 are the laggards that historically catch up. A theme is in an entry window when leaders have run hard but laggards haven't moved yet. Once laggards have already caught up, it's late. Purely mechanical — momentum only, no hindsight.
Loading scanner…
How It Works

Narrative Diffusion exploits a consistent pattern in markets: when a big theme emerges, not all beneficiaries move at the same time. Tier 1 (direct plays) leads, while Tier 2 and Tier 3 lag behind — sometimes by months. We rotate into laggards after Tier 1 has stretched, capturing the catch-up move with lower risk.

1
Detect narrative formation. Score each theme weekly using ETF momentum, price outperformance vs SPY, Google Trends velocity, arxiv paper acceleration, and news mentions. Enter when NFS ≥ 58.
2
Enter Tier 1. Buy the direct plays — the stocks that lead the narrative. Hold until up ≥ 45% AND the next tier shows 30-day positive momentum.
3
Rotate to laggards. Sell Tier 1, buy Tier 2 (infrastructure/picks-and-shovels). Repeat the rotation logic for Tier 3 (downstream/adjacent).
4
Exit on narrative death. If Tier 1 drops more than 20% from its narrative peak, exit all positions — the narrative has lost momentum. Hard stop −10% per position.
5
Wait for the next narrative. NFS scanning runs weekly. When a new narrative scores ≥ 58 across multiple sources, restart from step 2.
What This Is — And Isn't

This strategy does not predict the future. It detects narratives that are already forming but haven't been fully priced in — exploiting the natural lag between when institutional money moves into Tier 1 and when it eventually rotates into Tier 2 and 3.

The edge comes from patience and process, not prediction. When a narrative fails to develop (like the Reopening trade in 2021), the strategy exits quickly with minimal loss. 4 out of 5 backtested narratives were profitable, beating SPY in all 4 cases.

Current Status
AI Narrative · Tier 2
Holding power/energy stocks
Active narrative AI / Agents
NFS score 87.9 / 100
Current tier Tier 2 — Power
Next rotation watch EQIX, DLR (T3)
Narrative death trigger NVDA −20% from peak
Last updated May 11, 2026
Portfolio Details
Strategy type Narrative rotation
Asset class US Equities
Rebalance Monthly check
Stop loss −10% per position
Backtest period 2020 – 2026
Narratives tested 6 (5 profitable)