Best ETF Trading Strategy

  • Jul-18-2020

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. 


  • profile
    Kshitij Sharma
      3 weeks ago

    Do we reinvest the profits from one week to another or keep them flat throughout the weeks?

    Reply 1 comments
    • profile
      Square Off
        3 weeks ago

      Yes, you can compound it if you wish.

  • profile
    Karthikeyan R
      3 weeks ago

    I think if one have bought any of the ETF and held from 2007 to 2020 they would have still made similar returns.. right??

    Reply 0 comments
  • profile
    Sai Mohan Reddy
      3 weeks ago

    Thanks for sharing interesting strategy. I did back test from 2015 to 2019, these are returns without transaction charges which are similar to your results: 2015 4% 2016 7% 2017 44% 2018 6% 2019 27% After subtracting brokerage,results are: 2015 -7% 2016 -5% 2017 32% 2018 -7% 2019 14% It is not profitable after subtracting brokerage. can you please check again and let me know.

    Reply 3 comments
    • profile
        3 weeks ago

      Even with 1 month time frame, including the charges and slippage the strategy has negative returns in 2015 and 2018.

    • profile
      Sai Mohan Reddy
        3 weeks ago

      Sure, I will try with monthly, when I said brokerage, it is all transaction charges like stt, stamp duty.. I have taken zerodha charges only with zero brokerage in above calculations.

    • profile
        3 weeks ago

      Since zerodha charges zero brokerage for delivery based trades, brokerage cost is not considered, you can move the time frame from weekly to monthly, which will reduce the over all trades to just 12 trades per year, with almost similar returns.

  • profile
    Shashi S
      3 weeks ago

    This week all three are negative BB - 2

    Reply 1 comments
    • profile
      K V Rao
        3 weeks ago

      in such cases you put in LiquidBEES !!!

  • profile
    Shashi S
      3 weeks ago

    What to do in case we have negative returns as we have this week. BankBees -2.76%, GoldBees - 0.73% and N100 -0.22%?

    Reply 1 comments
    • profile
      K V Rao
        3 weeks ago

      in such cases you put in LiquidBEES !!!

  • profile
    Kshitij Sharma
      3 weeks ago

    How to calculate weekly change ? Is this data available anywhere?

    Reply 3 comments
    • profile
      Chandrasekaran Venkatramanan
        3 weeks ago

      i think the least negative one should be picked

    • profile
      Chandrasekaran Venkatramanan
        3 weeks ago

      https://www1.nseindia.com/products/content/equities/etfs/etf.htmDOWNLOAD ETF BHAV COPIES FROM NSE WEBSITE AND COMPARE THEM

    • profile
      Kshitij Sharma
        3 weeks ago

      Also what if all were negative for that week ?

  • profile
    Bhavaysh K
      3 weeks ago

    Lovely article...very new approach

    Reply 0 comments
  • profile
    Chandrasekaran Venkatramanan
      3 weeks ago

    Excellent. But if none of the three funds show any improvement over past week , like this week , what to do?

    Reply 2 comments
    • profile
        3 weeks ago

      Select the least negative

    • profile
      K V Rao
        3 weeks ago

      in such cases you put in LiquidBEES !!!


  • Tags | Best ETF Tradingu00a0Strategy,etf trading strategy,etf trading india,exchange traded funds india,positional trading strategy,positional trading strategy etf