TPS and Learning to Trade ETF Funds Successfully

Of all the high probability ETF trading strategies that Larry Connors and Cesar Alvarez have developed over the past few years, one strategy has stood out as not just one of the more powerful and robust methods for trading ETFs, but also as the one strategy that epitomizes in many ways what high probability ETF trading strategy is all about.

That strategy is TPS: Time Price Scale-in.

Click here to download our new free report: TPS and Learn How to Trade ETF Funds Successfully – featuring TPS: Time Price Scale-in.

What’s so special about TPS? Like all of Larry and Cesar’s high probability ETF trading strategies, TPS has been backtested on a wide variety of exchange-traded funds going back to inception (1993 in the case of the S&P 500 SPDRS ETF or SPY). TPS also has the exceptional, per trade win rates that characterize high probability trading: since 1993, for example, the SPY has been accurate in TPS more than 90% of the time. The QQQQ, since inception, has been accurate just over 89% of the time.

But what really makes TPS tick is the strategy of scaling-in, an approach to building a position that is tailor-made for mean reversion, high probability ETF strategies like Time Price Scale-In.

Scaling-in means adding to the position after an initial position has already been taken. For high probability traders, a strategy of scaling-in means buying additional shares of the stock or exchange-traded fund as the market moves lower.

TPS Chart

Scaling-in as a high probability trader does a number of things that make it easier for short term traders to trade ETF funds successfully. For example, as shown in the book High Probability ETF Trading, high probability ETF trading strategies that include even a modest, two-step scale-in of buying a second unit if the position closes below your original entry level after you are in the position, outperform the same strategy that does not use a scale-in.

Many traders are nervous about the idea of scaling-in, fearing horror stories of undisciplined traders who lost money after averaging down without a real strategy in place.

We find many trading truisms to be a bit suspect when held up to the light of vigorous, quantified backtesting and, in this, scare stories about averaging down are no different. When it comes to high probability, mean reversion based trading in ETFs, the data actually shows that strategies for “averaging down,” rather than being something to fear, are something that traders looking to trade ETF funds successfully should embrace.

To learn more about high probability ETF trading – and how strategies for scaling-in to positions can help improve your trading accuracy – click here to download a free copy of our latest free report, TPS and Learn How to Trade ETF Funds Successfully – featuring our signature high probability ETF trading strategy: Time Price Scale-In.

David Penn is Editor in Chief at TradingMarkets.com.