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The ETF Trend Following Playbook: Profiting from Trends in Bull or Bear Markets with Exchange Traded Funds Hardcover – August 23, 2009
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From the Back Cover
Master the Low-Risk ETF-Based Investing Strategy That Gives You the Chance to Make Money in Any Market Climate
“Tom Lydon has been a leader in the ETF business for many years. His new book walks through the basics of ETFs investing and shows why professionals-and increasingly, individuals-are turning to ETFs.
-Bob Pisani, CNBC Reporter
“Our complex and global financial system has created a powerful need for guideposts for investors and traders alike. Tom Lydon provides an excellent tool to help navigate the current economic environment in a clear, concise, easy-to-understand way.
-John L. Jacobs, EVP and CMO, The NASDAQ OMX Group, Inc.
“There are hundreds of writers, speakers, and advisers clamoring to get a seat aboard the ETF bandwagon. However, if you're looking for genuine insight from a real pioneer, then read Tom Lydon. Not only is Tom'sThe ETF Trend Following Playbooka principled how-to guide for individual investors, it is requisite reading for money managers.
-Gary Gordon, Editor of ETFExpert.com
“Tom Lydon has put together a concise handbook for the active ETF trader outlining the key drivers of successful trend investing.The ETF Trend Following Playbookprovides sound advice for traders as well as a comprehensive and up-to-date tour of all the ETF world has to offer.
-Scott Burns, Director of ETF Analysis at Morningstar
About the Author
Tom Lydon is the leading expert on ETF investing for individuals. He is also editor of ETFtrends.com, the #1 site for ETF news and commentary. Lydon is President of Global Trends Investments, an investment advisory firm that creates custom portfolios for high-net-worth individuals. He has been involved in money management for more than 25 years: first at Fidelity Investments, later as a founding member of Charles Schwab’s Institutional Advisory Board, and more recently as a board member for several fund companies. A regular contributor to the financial media, he is author of iMoney: Profitable Exchange-Traded Fund Strategies for Every Investor.
Top customer reviews
A. Main points about the ETF Trend Following Playbook.
1. This book promotes the idea of total reliance on the 200-day EMA (Exponential Moving Average) with such chutzpah, I tend to think there is something to this...? So, I expect to be disappointed, but it has gotten me interested in experimenting.
2. The most glaring shortcoming of this book is that it lacks any additional parameter, even to distinguish one ETF from another, either technical or fundamental.
3. Much of this book is taken up with cheerleading for "following the system" and "controlling your emotions." There are also more necessary chapters about "why" we could do better if we only owned stocks while they went up. Of course most investment books have this sort of cheerleading and perhaps most people need it. The main difference with Tom Lydon's book is that there is very little else.
4. As several other reviews have pointed out--most of this book has nothing to do with trend-following, but is just a catalog of available ETFs, with no actionable advice or even any distinctive opinion about each ETF. Possibly this entire book was patched together by one of Mr. Lydon's secretaries as something to hand out in client meetings. I even disagree somewhat with those who say this is "appropriate for total beginners." For people new to ETFs, it seems to me that the indiscriminate inclusion of just about every obscure ETF would be unnecessary and confusing.
5. However as an experienced ETF investor, I like this book as a handy reference with which to refresh and check my knowledge. For example, until skimming this book, it never occurred to me that trend-trading Forex ETFs might be a possible alternative to Forex trading.
B. More speculations about Tom Lydon.
I think it is important to note that Tom Lydon appears to be quite well respected. He only has a bachelor's degree but is the current editor of ETFTrends.com, "the no. 1 site for ETF news and commentary." Current president of Global Trends investment advisory firm. A founding member of Charles Schwab's Institutional Advisory Board. A board member for several fund companies. A frequent contributor to Forbes, The Wall Street Journal, Investor's Business Daily, Barron's, MarketWatch, Investment News and CNBC. Additionally...
1. Apparently, Tom Lydon left his initial grindhouse position at Fidelity to form Global Trends during the 1990's. Apparently, Global Trends became a successful pioneer in emphasizing ETF-based investing. Thus resulting in his current position as a leading expert in ETFs.
2. Investing in broad, unmanaged ETFs vs. "value investing" does not make much sense either in theory or for reputation--unless you believe strongly in the less-respected schools of "trend following" or "market timing."
3. So, it seems very understandable that Tom Lydon is somewhat of a maverick in advocating "trend following." Somewhat paradoxically, he takes the conventional stance against "market timing." "Please don't confuse trend following with market timing... Market Timing is guessing; trend following is a mathematical strategy." (p. 45)
4. Tom Lydon's supposedly mathematical proof for his simple system relies entirely on one study done on the S&P by a friend Werner Keller, president of a research firm. Keller's study suggests about 2-3 times greater returns than for buy-and-hold, and about half the maximum drawdowns, over two 40-year periods. However the resulting growth rate seems only about 8% annually.
5. I can find no clear advice in the book about minimizing the overhead created by fees and slippage. If you make 12 trades per year, with an overhead of -1%, that is -12% per year. So if a short-term system only adds +4% annually, this is likely worthless. However Tom Lydon is hardly unique among short-term investment gurus in failing to be clear about this essential arithmetic. Such is the rule not the exception. Before becoming overly critical, let us look at Tom Lydon's book in the context of other trend-following books...
C. My current sources of trend-following ideas, in order of priority to check out. (These are not recommendations--just the books I happen to have.)
#1. ETF Trend Following Playbook by Tom Lydon. (Dotcom: ETFtrends.)
Buy and sell according to 200-day EMA. This idea can be tested easily with a spreadsheet. There is no need to buy the book. Tom Lydon consistently and emphatically rejects any exceptions to his rule, even for leveraged inverse ETFs. Significant empirical evidence: one 80-year study of the S&P.
#2. The Neatest Little Guide to Stock Market Investing by Jason Kelly. (Dotcom: JasonKelly.)
This is primarily a long-term value-investing guide, which also uses market timing to know when to leave the market. Kelly suggests using leveraged ETFs, apparently claiming they have twice the upside as well as twice the downside. Perhaps I am mistaken, but I don't agree. I find they mainly have twice the downside. Instead of the single parameter suggested by Lydon, Kelly suggests combining the following three indicators for buy and sell signals.
50-day SMA. Kelly seems to suggest 'buy' when crossing above and 'sell' when crossing below. (However he does not specifically say this, and his chart shows a 20-day SMA with only 'buy' signals.)
MACD Histogram based on daily periods. Buy when crossing to positive, sell when crossing to negative.
14-day RSI. Buy when moving up across 30. Sell when moving down below 70.
Kelly is often wordy and is unclear. He seems to suggest a "buy" or "sell" when any two signals agree--but that a long-term strategy does not need to sell unless all three signals agree. Significant empirical evidence: none, except for one example showing that this strategy might have helped to avoid the brunt of the crash of 2008.
#3. Sensible Stock Investing by David Van Knapp. (Dotcom: SensibleStocks.)
Another "fundamental" value-investing system, also using "technical" indicators. Van Knapp has a chapter on "momentum trading" which applies only to "type M" stocks, with specific screening data on page 204. (4-wk increase > 10%. 13-wk increase >15%. 26-wk increase >20%. Revenue growth >10%. EPS growth >15%.) Among these, Van Knapp suggests to buy only stocks which have been trending upward for 3-4 weeks--and which score well on his Easy Rate system (chapter D-5). When to sell: at a trailing stop-loss of -10%. Van Knapp also has an interesting chapter, persuasively defending "market timing." Van Knapp uses the 150-day SMA (Simple Moving Average) of the S&P as one of eight major market timing indicators. Presumably, these indicators might be applied to ETFs. However Van Knapp does not discuss ETFs and makes no attempt to determine which indicators are more effective. So there is no telling whether the results of his equal-weighted system are significant--might be or might not. Moreover he does not suggest using market timing by itself, but only as an added confirmation to his other systems, or to determine how much of the total portfolio value to be actively invested. Significant empirical evidence: none.
#4. Market Timing for Dummies by Joe Duarte. (Dotcom: Joe-Duarte.)
Whereas Tom Lydon's "ETF Playbook" only has one play--the Market Timing for Dummies seems to be a true playbook for someone who wants to experiment with every method of market timing and of trend following. However it seems to me, you would just have to try everything in this book for a year before having a clear idea what to do with all this information. I was unable to find any attempt to suggest clearly which are the best methods, or how effective they might be, or to outline a beginner strategy. However the instructions for each strategy are quite clear and seem well worth testing out. Significant empirical evidence: none.
#5. Trend Trading for a Living by Thomas Carr. (Dotcom: BefriendTheTrend.)
Clear advice on trend-trading with stocks that have over twice the average volatility, and that appear to form long trends. This seems similar to what Van Knapp calls "type M" stocks. Carr then clearly details how to distinguish 5 "bullish" patterns and 5 "bearish" patterns, and how to determine a "buy" signal within each pattern. Carr's advice on when to sell is in chapter 11. Carr describes four methods both for protective selling of unprofitable trades and for claiming profits on profitable trades. However his favorite for both seems to be the Trailing Stop Profit of usually -8%. Carr claims that "studies show it is by far the most profitable." However he fails to reference any such studies. Significant empirical evidence: none.
#6. The New Sell and Sell Short by Dr. Alexander Elder. (Author of international bestseller: Trading for a Living.)
This seems to be the sort of book you might want to read after you are experienced in all the other trading strategies above. Otherwise, this book is difficult to follow. Seems focused on day trading and presents many ideas and techniques, while usually not giving any specific guidelines. Vaguely seems to endorse every popular style: both trend and counter-trend trading, both value buying and momentum buying, both systematic and discretionary. Elder seems to believe that different methods work better for different people. He himself prefers the freedom of discretion, and unlike Lydon, often advises to modify strategies based on "feelings." Four sell-point methods are described: at a moving average, using envelopes or channels (which I think maybe means Bollinger Bands), "support" and "resistance." Also insists on stop-loss orders, usually based on "previous low." Significant empirical evidence: none.
The most useful suggestion is placing a stop or picking an exact point to get out of a position. You rarely see this in typical books promoting individual stocks and certainly never with mutual funds. This is frequently overlooked in stock investing and makes tremendous sense when following Lyon's strategy of trend investing with ETF's.
I think almost all the info from this book can be obtained by reading Lyon's interesting insights on his website and as listed in the above reviews. I was expecting more strategies in using ETF's. The author is an obvious knowledgeable proponent of ETF's, but this book fails as a playbook. I can imagine future versions of this book with chapters dealing with specific situations such as economic depression, inflation, weakened dollar, retirement portfolio, etc.
The author's 200-day moving average strategy is certainly easy to understand for the reader but in his efforts to make it appear so simple, he seems to have left out some details that someone might need to know when attempting to implement it. For example, he recommends buying your chosen ETF when it crosses above the 200-day moving average and selling it when it falls below the 200-day moving average line. Simple enough. Unfortunately, he fails to indicate what to do if you're interested in buying an ETF that is already above the 200-day line. When would he recommend still buying it? He mentions that whipsaws can occur but he makes no recommendation as to whether a trader should wait to see whether an ETF that dips below the 200-day moving average line remains there or whether to simply sell and not look back.
Although he does make mention of the use of stop loss orders, he makes no recommendations within the book about whether traders should put in a stop loss after an ETF drops by a certain percentage or not. I did visit his website and found that he recommends setting a stop loss at 8% below a recent high. In my opinion, this is the sort of advice that should have been included within the book, but I guess one of the purposes of writing the book was to increase visits to his website.
For what its worth, I did visit the website and found it to be a valuable source of additional information regarding ETFs. I anticipate visiting it on a regular basis.
Most recent customer reviews
Excellent - Merchandise arrived as described, excellent condition, prompt and well packaged, great quality,...Read more
1. Don't read any of the 5-star reviews they were probably written by Tom's buddies.
2. The title is not indicative of the books content.Read more