Simple ETF trading method worked for 15 years

[loop101]

I post this as an example of a simple system that worked pretty well, until it became widely known (not unlike Dogs of the Dow). When you are looking for an edge, a simple edge is as good as a complicated one, and better if it means you can understand it.

http://sanzprophet.blogspot.com/2015/02/the-end-of-eom-strategy-and-rebalancing.html

"Historically and up to 2013, equities have exhibited a positive bias during the end of the month.
Here is an example of buying the SPY etf on the first down-day after the 23rd and selling on the first up-day of the next month."

 

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[themaxx]

Not really a forex trading system, is it????

 

[loop101]

Not really a forex trading system, is it????

Oops, I fixed the title. I had been studying FX systems all night, and drifted over to ETFs, so I still had FX on the brain.

 

[themaxx]

Oops, I fixed the title. I had been studying FX systems all night, and drifted over to ETFs, so I still had FX on the brain.

Did you find any decent FX systems?

 

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[loop101]

Did you find any decent FX systems?

I didn't see any that I thought would withstand serious scrutiny. I did see that the that ETF methods described in the Connors & Alvarez book still looked good, which was surprising since it was published in 2008. I was looking for something for FX that was simple and elegant as their ETF methods.

For example, if the market is random, and you take a long position with the EURUSD, with a +100 pip take-profit and a -100 pip stop-loss, you should break even over time. If you introduce a filter, like saying it has to be above the 200SMA, the results should still be random. I was looking for systems that traded a basket of currencies that used filters optimzed for each pair. For example, the EUR/USD pair may have a different optimal +/- pip range and SMA length than say, the USD/JPY. I didn't really find anything. Connors & Alvarez use the same indicators settings for all 20 of their ETFs, that never made sense to me. I should probably try it on ETFs, since they work better.

I was also looking for an easy way to capture the nature of the bet as to whether the market will "keep doing what it has been doing, or change". For example, if you are a trend-trader, you bet the trend will continue. When price goes up, you keep buying. If you are a range-trader, you bet the price will reverse, so if it hits the top of the range, you bet it will go back down. A way to codify this would be to say, if the EUR/USD goes up +100 pips, I am going to bet it will go up another +100 pips, before it goes down -100 pips. So instead of being over the 200SMA, you are simply betting it will go up by 100 pips because it just went up 100 pips. You are betting on continuation. Or maybe you want to bet it will stay in the range, in which case if it went up +100 pips, you would bet it would go down -100 pips before it went up +100 pips. The question then becomes how do you decide of the market is going to continue doing what it has been doing, or changing what it is doing, and that has always been the question no one can answer very well.

The "continue or not" can be interpreted two ways. A trend-trader sees an ever-increasing price as "more of the same", while a trend-trader sees a price reversion as "more of the same", so it's tricky to talk about. The trend-trader sees "more of the same direction", while the range-trader sees "more of the same trading range".

FX is so erratic, I don't think I will find anything. However, if I can prove something doesn't work, that is knowing something, which is valuable. For example, I could write an ebook of why the 5 most common FX trading methods wont work, etc.

 

[themaxx]

Comprehensive post! Thank you.