What does it mean to rely on an ETF trading strategy or ETF trading system that is “robust”? And why are “robust” trading systems the preferred choice of professional traders?
As TradingMarkets founder and CEO Larry Connors noted during the TradingMarkets High Probability ETF Trading Seminar last fall, when it comes to trading exchange-traded funds (ETFs), a robust trading strategy or trading system is one that takes into account a broad range of market data. In the case of exchange-traded fund trading, accounting for the largest possible universe of ETFs, preferably going all the way back to the beginning of trading in the very first ETF – the ^SPY^ back in 1993 – should be a goal.
A robust trading strategy also is one that can be traded in multiple ways. When you take a look at the test results for a trading system, whether it is a strategy for stocks or for ETFs, there should be multiple variations and different ways to trade that strategy or system. For example, with TPS (Time Price Scale-In), our most robust short term trading methodology for trading ETFs, we have tens of thousands of variations – all of which have positive historical test results.
Larry Connors elaborated on this point in an interview with Charles Kirk of The Kirk Report:
“If we’re looking at a 2-period RSI, looking to buy an ETF with a 2-period RSI below 5 that’s trading above its 200-day moving average, [the trading system] better start showing edges when the RSI is below 10, and the edges should start to get a little better at 8, and they should be even better at 6 and 5.
“What we don’t want to see is a strategy that works at RSI of 7, but doesn’t work with an RSI at 6, then works great at 5 and so on.”
Not only should a trading strategy or system be robust on the inside, it should be robust on the outside as well Larry continues:
“We also want to see strategies that have held up in bull markets, bear markets, low volatility markets, high volatility markets. We look at a period from 1995 to 1999 where you had a higher volatility up-trending market. We look at a period from 2000 to 2002 where you had a higher volatility down-trending market. From 2003 to 2007, you had a low volatility up-trending market In 2008, it was back to high volatility down-trending.
“You want to see your strategy hold up in all those different types of market conditions.”
This is the value of robust, data-driven trading systems and strategies. One of the biggest problems traders face comes when they move from trading system to trading system to trading system. One of the reasons why traders move from one trading system or strategy after another is because they keep encountering strategies that are not robust. These are strategies that often have been built on inappropriate market data
This may mean a look back period that is too short or too long. Or it may be that the strategy only performs optimally under certain specific circumstances that were present at one point in time (i.e., during the testing period), but no longer prevail – or even exist
This is why professional traders choose robust trading systems when they trade. Robust trading systems and strategies are methodologies that have been tested against a variety of market conditions and have shown that their performance is not the result of random, idiosyncrasies in market behavior. Instead, robust trading systems are based on statistics and historical patterns that have occurred again and again and again. And while past historical performance is no guarantee of future results, relying on a robust trading system – whether you trade stocks or exchange-traded funds – is a proven, effective way to approach the market in a clear, consistent manner every day. More than that, robust trading systems contribute toward a sound discipline as a trader, a key factor in trading success.
If you are looking for robust trading strategies or systems for trading exchange-traded funds, then click here to find out more about the TradingMarkets High Probability ETF Trading Seminar led by TradingMarkets founder and CEO, Larry Connors. From “Trading ETFs with TPS” to “Building an ETF Trading Business”, the TradingMarkets High Probability ETF Trading Seminar is like nothing else available for short term traders looking for quantified, objective systems and strategies to trade exchange-traded funds.
The TradingMarkets High Probability ETF Trading Seminar begins in October, so be sure to click the link above to reserve your spot before class begins.
David Penn is Editor in Chief at TradingMarkets.com.