Customer Reviews

A Practical Guide to ETF Trading Systems

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I must say that I was quite curious to see how the Author approaches trading ETF's compared to how one might trade Futures with a classic Trend-Following approach. I am sure there will be many skeptics both from the Futures camp (where equities are generally regarded as difficult / unsuited for Trend-Following) and the Buy-Hold camp (who believe "Market Timing" doesn't provide a superior total return).

I must say that if you put yourself in same frame of mind for evaluating performance as the Author, then you will be delightfully surprised by his findings. The key here is that he is evaluating not based on total return (price,dividends,tax implications), but based on risk-adjusted return. The typical argument that if you missed 10 best market days out of the last X years would mean you missed the bulk of the returns, does not hold water when you consider the risk associated with being in the market the whole time to capture those 10 days versus timing the market.

The text is logically structured, straight-forward in terms of prose, and walks the reader through the thought processes and testing approach of the Author while acknowledging certain limitations (including the limited data history of ETF's). An additional note is that my copy was not a hard cover as Amazon suggests, but a soft cover.

I would consider this to be a good primer on a professional approach to trading ETF's with a Trend-Following set of methods. It is to ETF's what "Way of the Turtle" by Curtis Faith is to Futures trading. It is going to get you interested, guide you to the water, but you are going to have to drink. It is not a get rich in 5 easy steps book, but rather a treatise to hopefully spark your imagination and inspire you to go forth and grow with the seeds provided.

My one critical point would be that the Author does provide the data for his findings but it is only available (at the moment) from a private customer site of the excellent trading tool he uses to do the analysis. There is no data supplied with the book itself. It would be useful to have some of the data in an open format (spreadsheet) and/or provide a limited/trial copy of the software he used to do the test and the proprietary (to that software) test results for those who do not already own it.

All in all this is a great starting point and a welcome addition to the library. The most illuminating finding within the book for me relates to how his approaches fare on weighted indices/ETF's versus unweighted indices/ETF's. This nugget of research/knowledge alone was worth the price of the book.

As a private investor who has always had scepticism on traditional fund managers' ability to deliver returns, this is a fascinating insight into an alternative way of trading. Though only an entry point into this methodology, it does give someone the chance to gain an initial understanding. From there an individual can trade on their own account or use it to find fund managers who will put together an alternative strategy which gives steadier returns than traditional stock picking and asset allocation. Well worth reading.

This book was recommended on the blog of Mebane Faber (author of The Ivy Portfolio). I am presently working to put together a simple timing system on a diversified portfolio of assets. For anyone looking to do the same, this book is well worth reading.

The systems and concepts are similar (but not identical) to those discussed in The Ivy Portfolio. The author goes into great detail on the systems' performance and shows how altering various aspects (start date, system parameters, asset classes, etc) would have altered past performance.

While such past performance is no guarantee of future success, the book does an excellent job of displaying the robustness of the reasonably simple systems presented. It gives me much confidence to move forward with a simple system that I believe will be effective over time. The author also shows ways to dial up absolute returns if desired and how doing so alters risk-adjusted returns and drawdown.

Perhaps the greatest take away for me was the author's demonstration that widely diversifying globally (treating the US as "one of many") and diversifying to deeper granularity has been effective for such systems in the past. This was a hunch I had, so I was glad to see the author had some proof that this was indeed true, at least historically.

The confidence I have gained is well worth the cost of this book.

Now I know how people can really put almost nothing on high quality paper, pretend to be valuable and sell for a premium. I would like to buy these papers with no word on it. That way, I can use it as my scratch book at least.