Finding Great ETF Trades is Easy, Part 2
For the past few days we’ve discussed using caution when only following moving averages to trade ETFs. There’s little to no statistical evidence they work and the mainstream research that is currently making the rounds is simplistic and not robust. We’ve also discussed the ways to properly build a trading model for ETFs and previously I showed you a few simple rules as an example of what an ETF model should look like.
The rules for the example were:
1. The ETF is above the 200 moving average.
2. Buy the ETF when the 2-period RSI closes under 2.
3. Buy a second unit it prices close lower than your first entry.
4. Exit when the 2-period RSI closes above 70.
And today we’ll look at the test results on this very easy to follow model.
We tested this model on a universe of over 100 of the most liquid 1x ETFs going back to the first day of trading of each of these ETFs. Using the above rules created the following test results:
442 trades
81.22% correct
1.44% per trade (that’s all trades, not just the winning trades).
Average hold is 5 trading days.
So there you have it. 4 simple rules looking back over 15 years and triggering over 400 signals with the more than 80% of those signals being profitable in the testing.
Strong, quantified strategies exist, especially in ETFs. The model above proves this out. And the nice thing about the above rules is that the entries and exit levels are not magic numbers. You will see healthy edges even with higher RSI entry levels and different exit levels.
The key is to keep things simple: buy on pullbacks, sell into strength, and quantify everything you do. It’s a good recipe for long term success in your trading.
If you would like a list of the best ETF set-ups Larry Connors sees each day, click here for you free trial to his Daily Battle Plan. For the past year, over 80% of the ETF selections made in model portfolio of the Daily Battle Plan have been successful. Click here for your free trial or call toll free 1-888-484-8220 ext 1 to start your trial today.
Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.