Algo Trading in India |
  • July 18, 2020
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Trading with stocks has been always a tough task, because finding that right stock which is expected to make big wins is really hard. However, trading with ETFs are relatively easier, as it represents the broader markets. But ETF is mainly used for long term trading, not many explored about a short term trading strategy out of it.

In this article, we will discuss about a momentum based trading strategy focusing only on three ETF, just spending 10 mins of your time every week is enough to trade this strategy. 

  1. Gold Bees — An ETF that invests in Gold
  2. Bank Bees — An ETF that invests in Banking stocks
  3. N100 — An ETF that invests in Nasdaq 100 stocks

We left out Nifty bees from the list, since we are focused on weekly trading strategy, Bank Nifty is more volatile than Nifty, hence trending moves are relatively higher in Bank Nifty, so we leave nifty bees from the list.

Rules:

The rules are simple, every Friday after 3:20 PM, almost near market close, find out which ETF is the top gainer for the week and Invest in that ETF and exit it by next Friday. Repeat the same task again on next friday.

Primarily we are going to buy the top performing ETF every week and re-balance it on weekly basis. We know momentum always works, with this exercise we are going to find if its going to work with ETFs as well. Our cost is relatively lesser with this delivery based trading system because most of the brokers don’t charge any brokerage at all.

We applied the rules and found what’s the top performing ETF every week from the list, from 2007 to 2020, we tested the strategy.

The strategy has given excellent returns year on year, even with year like 2008, it has given 45% returns, with yearly average returns of 23% for the last 13 years with max drawdown of -26% only.

By choosing diversified ETF, our risk is reduced as we not only invest in Indian equity market, but also on US equity market and Gold.

With just one trade a week, that too focusing only on three ETFs, just one ETF needs to be picked based on top gainer, just spending 5/10 mins of your time every week should be sufficient enough to generate decent returns year on year. 

You can even add your own rules to refine the strategy further, by changing the re-balance cycle from weekly to monthly, just one trade a month, or adding more ETFs to list. over all, the returns looking promising and worth considering as a positional trading strategy. If you liked this article, please do share share it (WhatsappTwitter) with other Traders/Investors. 

9 comments on “Best ETF Trading Strategy

  1. Would be great if you always compare your strategies to a simple buy-and-hold. In this way one can see if it is really the strategy that generates the wins or if it is the market that just went up.

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