today's ChatGPT study:

Your timed Top-5 25.6%
After tax (hypothetical model)
Strategy After-tax CAGR Tax drag
SPY 9.8% -0.8%
QQQ 12.8% -0.9%
Your timed
Top-5 20.8% -4.8%

So short-term cap gain taxes hurt your strategy much more compared to holding SPY and QQQ and only selling them at the very end of the test period —as expected—but they do not remotely destroy the edge in this approximation.

Compounding impact from $100k over 25 years:

Strategy Pretax ending value After-tax ending value
SPY ~$1.24M ~$1.03M
QQQ ~$2.49M ~$2.02M
Timed
Top-5 ~$29.9M ~$11.3M

The key observation:

Even though your strategy lost almost 5 percentage points of CAGR to annual taxation, the remaining after-tax return still substantially exceeded passive alternatives.

Also note something unintuitive:

Your strategy did not lose:

25.6%×.25

because:

loss years generated tax assets,
taxes were paid only on net annual gains,
compounding still continued on remaining capital.

So the tax drag was significant but not proportional.

And trading on either of the last 2 days of the month added 4% CAGR to the strategy beyond what I usually use in the report (which pretended trading the 1st day of the month). The last 5 days of the month were good most periods but the last 2 in all periods, i.e. their advantage did not degrade post-2000.

If you use 9 mo momentum on the market's top 100 stocks not in the Nasdaq100, 5 stocks monthly, the result is NOT GOOD. gtr1.net: GTR1 Backtester

Today I made what use to take me 6 months working; thank you momentum strategy!