Category Archives for "ETFs"

November 13, 2019

Trend-following vs. Momentum in ETFs

In Tactical Asset Allocation (TAA) or Dual Momentum (DM) strategies, they often will use trend-following or momentum to decide whether to invest in asset or not. I have two questions. One, how often does either trend-following or momentum out-perform buy and hold? Two, of the two which one out-performs the other more often?

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Market Timing with a Canary, Gold, Copper, LQD, IEF and much more

One commonality in my strategies is the inclusion of a market timing component. This could be a signal to go into cash or reduce position size or enter a ‘safe’ ETF. This applies to my swing trading strategies, my monthly rotation strategies and my Tactical Assert Allocation strategies. As a researcher, I am always on a looking to improve this part of my strategies.

There have been a handful of market timing methods I have been wanting to test and compare with my current 200-day moving average version. I collected enough of them to test all at once and to compare the results.

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The 50/50 SPY Strategy

I was talking to my trading buddy about the annoying part of trend following strategies. They may get you out of the major sell off but then you miss part of the run up. Using a 200-day moving average on the SPY would have got you out in late 2018. This would have been within 10% from the top and you would not had the pain of the additional 10% drop in December. But one would not have gotten back in until late February, missing a good part of the run up.

There is a dual nature of trend following strategies. They generally reduce your drawdowns during the bad years at the expense of underperforming during the good years. This underperformance can be big and difficult to deal with. Now if one is in the conserve wealth (vs grow wealth) part of their life, then this may be okay, but still difficult to deal with.

What follows is a possible way to balance these issues.

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SPY TLT Rotation

For my retirement accounts, I like to trade ETF strategies that require little work. One strategy we have all seen is the SPY/TLT strategy. There are many flavors of this concept. Some pick the best one over the last N months. Then there are different ways of allocating a portion of the portfolio to each. I currently don’t trade any SPY/TLT strategy and wanted to see if there was something interesting here.

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February 28, 2018

XIV Barbell Strategy

Well that was fun! I have been telling my trading buddy and anyone else that would listen that I fully expected XIV to open at zero one day. Now I did not expect it to happen so soon or the way it did. I trade a strategy that can be long XIV or long VXX or in cash. Because of the very likely possibility of XIV blowing up, I had constructed my portfolio using ideas from the barbell portfolio and this post, Taming High Return and High Risk. I was lucky and not in XIV when it did implode on Feb 6, 2018. Could a buy and hold trader of XIV made money even after the crash using these concepts? I was curious.

Barbell Portfolio

The idea of the barbell portfolio is that you put a small percentage of your assets (say 10%) in a very risky, high return asset like XIV. Then with the other 90%, you have it in something very safe like cash. Then at predetermined periods, you rebalance to be back to 10/90 allocation. These rebalance periods can be monthly, quarterly, semi-annual and yearly. What rebalance period you choose and the when can have a huge impact on your results.

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September 20, 2017

ETF Sector Trading: The effect of daily, weekly and monthly timeframes

I recently gave a presentation on Sector trading using the 200-day moving average at the Northwest Traders and Technical Analysts. Some questions asked were:

  • What if we only trade this monthly?
  • What if we used weekly bars to trade only weekly?
  • What if we used weekly bars to trade monthly?

The reason for these questions was to reduce the frequency of having to check signals and the total number of trades. My first response was that the results would probably be a little lower and the trade count also would be lower. But that was just a guess. I have been doing this long enough to know that I wrong 40% of the time. Curiosity got the better of me and I tested it out.

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