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Feb 15

High Probability ETF Trading Strategies on Stock

Posted by abiao at 11:21 | Code » Other | Comments(2) | Reads(12748)
Finally finished reading the book High Probability ETF Trading: 7 Professional Strategies To Improve Your ETF Trading bought few weeks ago, in the book the authors share 7 professional quantitative trading strategies to improve ETF trading, namely: 3-day high/low method, RSI 25/75, R3 strategy, the %b strategy, multiple days up and down, and RSI 10/6 & RSI 90/94 strategy. Since ETF is not easily accessed for individual investors due to large amount fund requirement, my first thought is: are these trading strategies suitable for stocks trading? At the end of the book the authors also said: "the strategies in this book are intended for ETFs. Many of the concepts are derived from high probability equity trading strategies, but stocks have very different risks than ETFs". In addition, the authors also note "ETFs tend to move from overbought to oversold better than individual stocks", considering all of the 7 strategies are based on buying on pullbacks, I wasn't optimistic about them on stocks.

I tested 5 strategies out of 7 for a randomly selected Chinese stock downloaded from Yahoo, since shorting selling is hard in Chinese market I exercise long strategy only (which might influence their performance, I admit). Starting with capital 12500, transaction cost 0.5% and running for one year data, the results are (pls bear with me, the graphs look ugly, just for preliminary research):
1, 3-day high/low method
High Probability ETF Trading Strategies 3 day high low
2, RSI 25/75
High Probability ETF Trading Strategies RSI 25/75
3, R3 strategy
High Probability ETF Trading <strong>Strategies R3
4, the %b strategy
High Probability ETF Trading Strategies the %b
5, multiple days up and down
High Probability ETF Trading Strategies multiple days up and down

Although all for pullbacks, 3-day high/low method did worst with only 0.01 sharpe ratio, compared with the best one the %b strategy 3.34 and buy & hold strategy 0.74. R3 strategy generates 2.67 sharpe ratio high enough for trading but we have to be very careful as the slipage cost due to whipsaw position may kill our profit.

Anyway, as the authors mentioned, we must test seriously before applying these strategies to non-ETF assets, especially for breakout type assets. Added the book to your shelf now High Probability ETF Trading: 7 Professional Strategies To Improve Your ETF Trading.


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thanks for your work.  I read the book and coded up a few of the strats myself, but in tradestation using easylanguage
you are welcome, implementation in tradestation is great indeed, but since i mainly invest in Chinese market, I have to give up the platform.
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