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June 2008 Stocks and Commodities Traders Tips


Profit With ETFs

Original article by Gerald Gardner and Trent Gardner
AIQ Code by Richard Denning

The AIQ code for Gerald & Trent Gardner’s article, “Profit with ETFs” is shown below. I ran simulations using a list of 447 ETFs. I used a long list because I noted that there are not enough trades from the system when shorter lists are used leaving much of the capital idle. Since the trading system uses a limit order entry, we can not, in good conscience, use a ranking formula such as relative strength or even the one the authors suggest (alphabet sort) since we do not know which signals will get filled first. In order to get an idea of the effect of trade selection, I ran 20 tests using a random number generator to choose the trades when there were more than one trade signal per day-see Figure 1.

The average return on investment varied from a low of 6.18% per year to a high of 10.41% per year with an average of 8.34% and a standard deviation of 1.24. I ran these tests putting 100% of available capital into each trade with only one trade allowed open at any time.

I also ran a test using relative strength to sort the trades even though it would be difficult to apply this to actual trading. The relative strength curve showed a return on investment of 10.11% which is on the high side compared to the twenty random curves. The equity curve from this test is shown in Figure 2 and is compared to the S&P 500 index.

Figure 1: 20 Random Entry Selection Equity Curves

Figure 2: Equity Curve Using Relative Strength

EDS Code for Profit With ETFs
ProfitETF.EDS

ETF AIQ List File
ETF-ALL.lis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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