The ETF Trading Bandit software program gives signals based on the book ‘High Probability ETF Trading’ by Larry Connors and Cesar Alvarez. The results are tracked based on entering and exiting the next day at market open after a signal has been generated. The list of ETFs that are tracked here are the original 20 ETFs that were documented in the book.

Since the release of ETF Trading Bandit (October 2010), here are the results as of December 10th 2010. These results are based on taking the first signal only and not using the aggressive scale-in signals:

RSI 25/75 Long Strategy

To see all of these signals on a chart and to monitor this strategy on a daily basis download the forever free ETF Trading Bandit Trial.

I’ve just finished working on an information series on High Probability ETF Trading and have produced a set of videos with all the information you need to take advantage of these strategies.

Check it out here:
http://www.etftradingbandit.com/

The strategies are all based on published work by Larry Connors and Cesar Alvarez but with a twist. I’ve modified the entry and exit rules so that you don’t have to watch the markets during the day. The strategies have been fully backtested using EdgeRater and the results are documented in a PDF report attached to the video series.

The best thing is that you don’t need expensive software or a monthly subscription to a web site in order to follow the strategies. I’ve included a free spreadsheet that you can use to find tomorrow’s signals.

Check it out here:
http://www.etftradingbandit.com/

Would you trade this strategy?

After my last post regarding the CME data import functionality an EdgeRater user told me about a winning strategy using the e-mini S&P 500 contract.

It appears that my post was very timely because he had heard about the strategy the day after the post appeared.

Being eager to use this new data capability in the program I decided to run the strategy through the trade simulator to see for myself…

I thought what I found might intrigue you and so I put together another video that shows the exact rules for the strategy and the results of running it over the last 5 years of data.

Feel free to comment at the bottom of the video page.

The Strategy:
VIDEO: e-mini S&P 500 strategy

Happy trading!

Last week I went online with Ron Brown of HGSI to experiment with Ian Woodward’s %B buy and sell system for stocks and ETFs. We wanted to see the characteristics of the system in both a down and an up market and we used the SPY as a comparison benchmark. I recorded the session and you can see it here:

http://www.edgerater.com/Videos/IanPctBTradingSystem_Ron.aspx

Enjoy,

Chris.

Last week I did a webinar with Ron Brown from HGSI on the virtues of Relative Strength trading and how you can analyze strategies like this in EdgeRater. The recording is now available for all to see at:

/Videos/RelativeStrengthWebinar_Ron.aspx

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Article Update: Find these ETF Signals with my new program
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In the previous EdgeRater strategy analysis article I analyzed the first of Larry Connors ETF strategies – the Three day high/low method using a long entry. That strategy appeared to test well and gave statistically advantageous entries when tested over the historical period.

In this article I will analyze the short entry method of the same strategy. If the short entry method has a positive expectation in addition to the long entry method then there is something of value here.

So, let’s get started.

Symbol List

I will be using the same set of symbols as in the previous article. To use this list within EdgeRater, create a text file containing the symbols and names (copy and paste the list in the previous article to a new text file) and add it to the {EdgeRater}\Symbols Lists directory in your documents folder.

Historical testing period

The testing period for Larry’s strategies is 1/1/1993 to 12/31/2008.

EdgeRater snapshot

For this analysis I have used the Yahoo! data provider and created my data snapshot using the above symbol list and date range. I was able to just re-use the snapshot that I created for the first article because the only differences between the two strategies are the entry rules.

Entry Rules

Larry’s entry rules for the short trade are the reverse of the long trade entries and are as follows:

• Today’s close price is below the 200 day SMA
• Today’s close price is above the 5 day SMA
• The high price of 2 days ago is above the high price of 3 days ago
• The low price of 2 days ago is above the low price of 3 days ago
• The high price of 1 day ago is above the high price of 2 days ago
• The low price of 1 day ago is above the low price of 2 days ago
• The high price of today is above the high price of 1 day ago
• The low price of today is above the low price of 1 day ago

EdgeRater Chart Script

The entry rules can be written in Chart Script like so:


Below200:= C < SMA(C,200);
Above5:= C > SMA(C, 5);
HL3:= (Ref(H, 2) > Ref(H, 3)) & (Ref(L, 2) > Ref(L, 3));
HL2:= (Ref(H, 1) > Ref(H, 2)) & (Ref(L, 1) > Ref(L, 2));
HL1:= (H > Ref(H, 1)) & (L > Ref(L, 1));

Event: Below200 & Above5 & HL3 & HL2 & HL1;

Running the Analysis

Once the Chart Script has been entered into EdgeRater it will appear as a Chart Script selector in the Edge Runner tab (because it has an output line named ‘Event’). To run this analysis over the prepared snapshot of data, first ensure that the snapshot has been chosen in the Snapshot pane and then make sure to select the ‘Use global exclusion lists’ check box in the Snapshot Filters. This will ensure that the _INDEX symbol that is automatically added to every snapshot will not be considered during the analysis run.

Once everything has been set up, hit the ‘Run’ button to start the analysis.

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Article Update: Find these ETF Signals with my new program
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Results

So, what do these setups look like? Here are a couple of examples – one that fulfilled the premise and one that didn’t:

GLD ETF successful entry

Successful entry point in the GLD ETF – following bars show a sell-off

GLD ETF unsuccessful entry

Unsuccessful entry point in GLD ETF – following bars show a rally

In both cases you can see that the setup conditions were met – three consecutive days of higher highs and higher lows with stock closing on the signal day below the 200 day SMA and above the 5 day SMA. Clearly not every trade will be a winner, but it is important to know the statistics of this strategy to see if it is a strategy that is a) profitable in the long run, and b) fits your trading personality so that you are comfortable trading it.

Statistics

The Next N Bars report shows that this short entry was profitable during the analysis period when holding anywhere from 1 through to 10 days (I didn’t examine any longer than a 10 day hold) with a 5 day hold period performing best at an average -0.71% loss. In order to compare to the long entry strategy of the previous article I will show the histogram of the 4 day hold:

4 day hold statistics

3 day High/Low short entry with 4 day hold period

Baseline

The baseline scan is identical to the one in the previous article due to identical symbol list and timeframe, I have repeated the result here for convenience.

Next N Bars baseline

Baseline scan mean gain of +0.0944% with standard deviation of 3.4776

Summary
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Article Update: Find these ETF Signals with my new program
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Larry Connors’ three day high/low strategy – short entry method had a positive expectation over the testing period and interestingly was profitable in addition to the long entry method using the same time period and set of ETFs.

If this strategy is something that fits your personality you should definitely enter it into EdgeRater and experiment with the results for yourself. Once you have seen the various instances of setups and looked at all of the reports I have a couple of suggestions for further analysis.

• In the setup instance charts above you can clearly see that even though all the entry conditions were met in the failure case, the 200 day SMA was in fact moving higher indicating that the long term trend could be changing. An extra entry condition worth looking at would be that the 200 day SMA has to have a downward slope.
• In practice it would not be possible to enter positions at the close of the day when the conditions required to determine the entry rely on the actual closing price. The Next N Bars report in EdgeRater can be set to a baseline price of the following day’s open. An extra analysis step could be to experiment with these different baseline prices by changing the radio button setting.

Once you have a strategy that you want to trade, run EdgeRater each evening to update the snapshot with the latest data and run the selector over that snapshot. The last column in the event grid will contain the symbols that triggered for trading tomorrow.
This analysis is presented as information only and is not a recommendation to trade any particular symbol or strategy. All trading involves risk and you alone are responsible for your trades.

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Article Update: Find these ETF Signals with my new program
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This is the first in a series of articles which will analyze the strategies contained in Larry Connors’ popular 2009 book Larry Connors’ High Probability ETF Trading which presents 7 strategies for trading highly liquid ETFs. The goal is to determine the statistical significance of the entry points. In other words I want to find out if the entries presented in the book were any better than random over the time period tested.

I will be using EdgeRater to analyze the strategies and this article will present the steps I use along the way so that anyone can follow along and maybe take the analysis further.

3-Day High/Low Method

The first strategy in the book is the 3-Day high/low method. This strategy looks for ETFs that have made lower highs and lower lows for three consecutive days. Combined with a long term moving average to ensure the ETF is generally healthy and a short term average to indicate a pullback the conditions can be written as follows:

• Today’s close price is above the 200 day SMA
• Today’s close price is below the 5 day SMA
• The high price of 2 days ago is below the high price of 3 days ago
• The low price of 2 days ago is below the low price of 3 days ago
• The high price of 1 day ago is below the high price of 2 days ago
• The low price of 1 day ago is below the low price of 2 days ago
• The high price of today is below the low price of 1 day ago
• The low price of today is below the low price of 1 day ago

EdgeRater Chart Script

To run the strategy within EdgeRater we need to create a series selector using the above criteria. In this case I will write some Chart Script and assign the final selection to a variable named ‘Event’ – this will allow me to drag and drop the script onto the Series Selector design surface and run script over all of the stocks in the snapshot. The code for the ChartScript is:


Above200:= C > SMA(C,200);
Below5:= C < SMA(C, 5);
HL3:= (Ref(H, 2) < Ref(H, 3)) & (Ref(L, 2) < Ref(L, 3));
HL2:= (Ref(H, 1) < Ref(H, 2)) & (Ref(L, 1) < Ref(L, 2));
HL1:= (H < Ref(H, 1)) & (L < Ref(L, 1));

Event: Above200 & Below5 & HL3 & HL2 & HL1;

EdgeRater symbol list

In his book, Larry claims to have tested his strategies on 20 popular ETFs as follows:

DIA, Diamonds Trust (ETF)
EEM, iShares MSCI Emerging Markets (ETF)
EFA, iShares MSCI EAFE Index (ETF)
EWH, iShares MSCI Hong Kong Index (ETF)
EWJ, iShares MSCI Japan Index (ETF)
EWT, iShares MSCI Taiwan Index (ETF)
EWZ, iShares MSCI Brazil Index (ETF)
FXI, iShares FTSE/Xinhua China 25 Index (ETF)
GLD, SPDR Gold Trust (ETF)
ILF, iShares S&P Latin 40 Index (ETF)
IWM, iShares Russell 2000 Index (ETF)
IYR, iShares Dow Jones U.S. Real Estate (ETF)
QQQQ, PowerShares QQQ Trust (ETF)
SPY, SPDR S&P500 (ETF)
XHB, SPDR S&P Homebuilders (ETF)
XLB, Materials SPDR (ETF)
XLE, Energy Select SPDR (ETF)
XLF, Financial Select SPDR (ETF)
XLI, Industrial SPDR (ETF)
XLV, Health Care Select SPDR (ETF)

To use this list within EdgeRater, create a text file containing the above symbols and names (copy and paste the above to a new text file) and add it to the {EdgeRater}\Symbols Lists directory in your documents folder.

EdgeRater data snapshot

Once the list has been created you can easily create a snapshot containing all of the data for those symbols. I built my snapshot using the built-in free Yahoo! data provider. I chose a date range from 1/1/1993 – 12/31/2008.

Running the Analysis

Using the Edge Runner tab within EdgeRater, I selected my freshly created snapshot and checked the box ‘use global exclusion lists’ so that the _INDEX of the snapshot was not included in the results.

Results
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Article Update: Find these ETF Signals with my new program
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It was interesting to see the Event Grid containing events for all of the symbols in the snapshot dating back to 1993. On my laptop running Windows 7 this result was generated in 1/10th of a second – not bad for a sub $700 dollar laptop, and excellent for allowing me to experiment with different parameters.

Here’s a screen shot of part of the event grid where you can see the symbols that EdgeRater has selected. I chose to capture a screen shot of the 07/18/2007 column because that is the date that Larry uses for the EEM example ‘event’ in his book:

Event grid after the 3-day high/low selector has run

Shameless plug…

I find this grid extremely helpful because not only does it show me the stocks that met the criteria today, but it also shows the stocks that met the criteria for every historical day in the analysis period. In other scanning applications that pick out stocks that met criteria for today only, I’m often left wondering what is going to happen to those stocks and trying to remember to come back to my computer in a few days to find out. EdgeRater shows me all the results for all previous days in the grid and I can just double click on any of those items to see a stock chart with the event highlighted so that I can see what happened next.

Statistics
Using the Results tab I took a look at the statistics of the selections and found out what the average gain was after ‘N’ bars of the event occurring. Here’s a screen shot showing the statistics of gain/loss 4 days after the event:

3-Day High/Low gain loss frequency

The mean value was +.5474% with a standard deviation of 2.8719

Baseline

The gain/loss frequency chart looks really interesting, showing an average of .5474% gain in 4 days. However, that gain might have been due to the general market behavior and nothing to do with the chosen entry points and so I ran a baseline scan which shows the average of all stocks, not just the ones that met the criteria. Here’s the result of the baseline scan:

The mean value was +.0944% with a standard deviation of 3.4776, so the baseline scan does have a positive expectation when holding for 4 days which indicates that the market as a whole was gaining during the analysis period, but that gain is far lower than the gain when taking the 3-day high/low entry.

Summary

The first strategy in Larry Connors’ ‘High Probability ETF Trading book’ – the 3-Day High/Low Method looks like it produces entries with a positive edge compared to a baseline entry point. This is the first test that I would run on any proposed strategy and in this case it warrants further investigation. EdgeRater is a great tool for designing and exploring many different strategies and I would encourage the reader to view the other reports that are available in the application such as the simulated trade reports including the daily equity chart.

I am now interested in running an analysis of the short entry method for the same time period – if that also has positive expectation I may well be running these on a nightly basis to find trade candidates for my trading account.

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Chris White
CEO, EdgeRater LLC