ETF Prophet

Following on from my last post looking at TSI rankings to choose the market to trade DVB, I thought I’d follow up on a couple of the ideas mooted in my last post.

The general idea is to trade the DVB on the market with the highest TSI score (Between SPY, QQQ and IWM).

I noted that the market with the highest TSI tended to have the best returns on the long trades (as you might expect). Following a similar theme, when the IWM (Russell 2000) had the highest TSI, short trades as a whole under performed, especially on the IWM.

So I looked at a hedge on short trades when the IWM was top. The theory runs that if the IWM has the

top TSI score, it is a very strong market so short trades will suffer even more.

Long:

Only trade the market with the highest TSI.
Go long when the DVB drops below 50.

Short:

If the S&P500 or Nasdaq 100 have the highest TSI, go short when the DVB is above 50. [Only when that market has the highest TSI].
If the Russell 2000 has the highest TSI, put half the trade on buying the Russell 2000 and half whatever trade signal you get from the S&P 500.

Performance:

I’ve not accounted for costs/ slippage etc, but it would seem this approach increases overall returns, albeit with an increase in drawdown risk. Still, it would seem the approach merits further investigation.

Other markets:

Another spin on the theme is to throw in other markets to the mix. Here I’ve looked at the long only returns from trading DVB signals long only between SPY, QQQ, IWM and EEM (Emerging markets) based on the market that has the top TSI score.

The returns do indicate that this approach has merit.