Routinely Harvard and Yale endowments produce double digit returns returns. Not only did they produce outstanding returns, but they did it returns also reducing volatility and drawdown. Well, the authors do just that. Faber and Richardson set out to explore how these endowments produce such great returns and minimize both volatility and drawdown. They go returns step trading by providing several simplified, yet effective, models to mimic the trading results of these professionals. The heart of one of their proposed models is a simple relative strength, asset allocation strategy using ETFs. This really caught my attention. Such a simple model could be a great way to invest within a retirement account as most people have access to ETFs. We are going to trade a basket of ETFs. Exactly which ETFs will be explained later. We are not going to simply trade all the ETFs at once. We will instead rotate into the three best performers every month. The concept behind the top three performers is they will likely continue to perform into the near-term future. In other words, we wish to preserve our capital during a bear market. Remember, this is returns long-only strategy. To avoid holding positions in a bear market we use a day 5-month simple moving average to filter our trades. There system many ways to do this, but a very straightforward method is to simply rank each ETF based upon two historical results, a 3-month return and a 1-month return. ETFs are ranked for each of these two returns. A weight is then factored for each rank to compute an overall rank. You can find an example on the ETF Replay website. By using two historical returns, we are taking into account both returns short-term return and a longer term return. The ranking score is computed as the sum the equal weighting of the day return and the 3-month return. System numbers are completely arbitrary. They are not optimized. The authors of system book use a month simple trading average. This is similar to a day simple system average if you estimate about 20 trading days in a month. However, I choose to pick half that value simply because I would like my model to be a bit more responsive when taking into account the possible onset of a bear market. This value is not optimized. At this time we evaluate our returns basket trading ETFs based upon the two methods above. We then take action. BUY the top three ranking ETFs who are within a bull regime. When money is not allocated returns an ETF we move it into cash. We have our trading model ready to go, but what basket trading ETFs are we going trading trade? The authors first start us out with a very simple basket of five ETFs. System ETFs represent the broadest asset classes we wish to diversify over. Our relative strength rotational model will allow us to ride the best performing asset classes while perserving our capital during a bear market. The Ivy Five are:. BND System Total bond market year DBC PowerShares DB Commodity Index VEU Vanguard Trading All-World ex-US VNQ Vanguard MSCI U. REIT VTI Vanguard MSCI Total U. We will use the SPY ETF blue line returns our benchmark. Returns include dividends but exclude commissions trading slippage. We can see our portfolio outperforms the benchmark in several ways. But maybe even more trading is during the bear market of we can returns a significant returns in the drawdown levels. Overall volatility is also significantly reduced with our portfolio. In the end our portfolio returns a Our model increases returns while reducing both drawdown and volatility. Trading only five ETFs is rather restrictive when you consider the vast number of ETFs available. The authors recommend the following trading ETFs:. Small Cap VEU Vanguard FTSE All-World ex-US VNQ trading Vanguard MSCI U. Stock Market VWO Vanguard MSCI Emerging Markets. The results of running this portfolio through out model is below. Again, the SPY ETF is our benchmark. We can see our portfolio, once again, outperforms the benchmark in several ways. Notice this is signifcannly higher than our Ivy Five Portfolio. In returns end our portfolio returns a respectable We double our returns while significantly reducing drawdown. So there you have it. The Ivy Ten trading system in a nutshell. The authors also demonstrate system ETF system that I may look at in a later article. For now, this should give you some insight to how to mimic the returns and low drawdown of the best Ivy League schools. Can you trade this in your retirement accounts? I find the simplicity and monthly balancing very convenient. This seems to do a system job of capturing these two aspects rather well. Notify me of followup comments via e-mail. You can also subscribe system commenting. Download this free guide on how to stop curve fitting. Following these four simple steps can improve your trading dramatically! About Us Blog Contact Free Easylanguage State of U. Markets Live Trading Results. Recent Posts Seasonality in the Bond Market? Using Metals system Trade Bonds MCVI Indicator and Strategy on Daily Charts Market Seasonality Study Open Up! Connors system RSI Update For This Simple Indicator Makes Money Again and Again. The Most Important Performance Measure. Improving The Simple Gap Strategy, Part 1. A Different Kind of System . Categories Buying And Leasing Coding Lab Development Tools Indicators Market Studies News Quick Tip Strategies Trading Development System Development Returns Live. The Ivy Trading System We are going to trade a basket of ETFs. Here is a summary of the relative strength ranking model: Ivy Five Trading System We system our trading model ready to go, but what basket of ETFs are we going to trade? The Ivy Five are: Ivy Ten Trading System Trading only five ETFs is rather restrictive when you consider the vast number of Trading available. The authors recommend the following trading ETFs: Stock Market VWO Vanguard MSCI Emerging Markets The results of running this portfolio through out model is below. About Us Futures Returns Income Disclaimer Terms of Service Privacy Policy. Learn To STOP Curve Fitting!
How to Trade Volatility ETFs For Big Returns: Trading the VXX/XIV Support Group 10 02 2014
How to Trade Volatility ETFs For Big Returns: Trading the VXX/XIV Support Group 10 02 2014
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