The 3rd strategy that I will be tracking in this Blog is the DVI strategy as described and reviewed in post1 and post2. The strategy trades a universe of 26 ETF’s. The signals of this system are generated daily. At the moment my semi-auto setup does not yet allow for daily uploading to my blog. I am working on a daily email update. If you are interested to be added to the list of recipients, drop me an email at quantingdutchman @ hotmail dot com. I will notify you when things are up and running.
It is a midterm trend reversal strategy that buys at dips and shorts at peaks.
The strategy trades a universe of 26 ETF’s representing a broad range of indexes across various asset categories. ETF’s are used as they show lower volatility compared to shares and offer low-cost access to index trading for small investors. ETF’s included in the universe are: DIA, EEM, EFA, EWH, EWJ, EWT, EWZ, FXI, GLD, GSG, IEF, ILF, IWM, IYR, QQQQ, SPY, VNQ, XLB, XLE, XLF, XLI, XLP, XLU, XLV, XLY, XLK.
Entry & Exit
The strategy enters long or short positions daily as described in the system code. Note that I’ve made a small tweak since the discussion in post2.
Money Management & Ranking
Initial Equity is assumed to be 10.000$ as we are looking for to run strategies for small investors. The equity is split into 3 positions of 3333$ to spread risk. Going for smaller positions would increase transaction cost% to an unacceptable level. ETF’s are ranked by a calculation of DV2 to determine what two ETF’s are traded. The top 3 ETF’s in that ranking are selected.
Below is a graphical summary of the simulation over the period 1-1-2003 through 13-8-2010. Transaction fees are based on Interactive Brokers fee structure and are included. Slippage costs have been kept at 0% as the strategy uses MOC orders.