UPRO/TQQQ Leveraged ETF Strategy

Recently a reader sent me a leveraged ETF strategy that he wanted tested for the blog. Over the last couple of months, I have been noticing renewed interest in leveraged ETF trading. More clients are coming to me to test out leverage trading ideas. I have been testing my own ideas. What I liked about this strategy is that it moved between leveraged ETFs, non-leveraged ETFs and TLT.

November 15, 2023

in ETFs , Rotation by Cesar Alvarez

Sector Rotation Strategy: Should Trading Rules Make Sense?

I was doing my usual reading when I came across a sector rotation strategy. I have seen lots of these strategies but this one had a different twist. The strategy was a momentum strategy but instead of buying the top three, it was buying the middle three. The article gave no reason other than it works and gives the best results.

In general, people fall into two camps about trading rules.

The trading rules need to make sense on why they are there.
Don’t care about the rules if the stats are good and over-fit tests pass.

September 14, 2022

in ETFs , Rotation by Cesar Alvarez

Three Factor ETF Rotation Strategy

I am drawn to ETF rotation strategies. What likely draws me to them is that in general, these are simple strategies that do not trade that often. My goal with these strategies is to match buy and hold with less drawdown.

What follows is a strategy I have known about for a while and tested but never written about.

Correction on January 18, 2023

This post was corrected on January 18, 2023, after an error was discovered in the code. What is rare, the results with the correct code are better.

The Concept

From a set of ETFs, select the one to three that have had the best short-term return, best mid-term-return with the least volatility.

May 12, 2021

in Research , Rotation , Stocks by Cesar Alvarez

Different ranking methods for a monthly S&P500 Stock Rotation Strategy

Recently for my own trading, I have been researching rotational strategies on both the weekly and monthly timeframes. The most common indicator that I use for ranking stocks is Rate of Change (ROC) of the closing price. I read about using Rate of Change on the EMA to rank stocks. I liked a small twist on the idea and wanted to know how it compared to what I am using.

Then this led me down another path of trying other ranking methods with an interesting result using historical volatility (HV) that I did not expect.

February 5, 2020

in Research , Rotation , Stocks by Cesar Alvarez

Inverse Volatility Sizing Index

In my last post, Inverse Volatility Position Sizing, I tested inverse volatility sizing on a monthly rotation strategy. I saw very little difference in the rest results versus equal position sizing. I was talking to a trading friend about the research and how I was surprised at how there was not any difference in the results. He suggested creating an index using this method.

Now, this sounded like an idea with good potential. And even better it should be easy to test since I had the code written already.

January 8, 2020

in Research , Rotation , Stocks by Cesar Alvarez

Inverse Volatility Position Sizing

Recently I’ve had several of my consulting clients come with a strategy that uses Inverse Volatility Position Sizing. The basic idea is that the more volatile positions have smaller size while the less volatile ones get a larger size. I have always been a fan of equal position sizing for several reasons. One, it is simple to do. Two, it is one less variable to optimize on and thus overfit on. Three, I rarely see much change in the metrics I care about when using more sophisticated algorithms.

Inverse Volatility Position Sizing is said to slightly reduce returns but has a big decrease in drawdowns and an increase in Sharpe Ratio. Time to test and see if that is true.

September 25, 2019

in Research , Rotation , Stocks by Cesar Alvarez

The Simplest Momentum Indicator

We all have our favorite momentum indicators. One of mine is percent off 1 year high. This requires 252 data points and comparisons, plus a division. Another one is the 200-day moving average. This requires 200 closing prices, 199 additions and a division. A simple momentum indicator is Rate of Change which is the return of the asset of the last N days. This requires two prices and a division to calculate. That is simple. In this post I will show one that requires just one price and no math.

August 28, 2019

in Research , Rotation by Cesar Alvarez

Monthly Rotation – Closeness to $10

It is funny that my last post, Brazilian Jiu-Jitsu & Trading – Shiny New Toy, because this post is definitely chasing a shiny toy. I was reading the August 2019 Technical Analysis of Stocks & Commodities issue and came across the article “Swing Trading 10-Point Breakouts.” The basic concept was looking for stocks basing under a multiple of $10, then buy when it closes about that multiple. For example, the stock is trading at $29.50. Then closes at $30.25, buy it. I am thinking there is no way this can work. My curiosity got the better of me and I was off chasing the Shiny New Toy.

February 20, 2019