As a result of some of the other changes we’ve made to the site, the signals should now be updated normally early on Saturday morning instead of later in the day on Saturday as before. We’ve updated the FAQ with this information.
ETF Trading – When to Trade Our Signals
As we discussed in a previous post (and the FAQ), our systems show results for trading at the Monday (or first trading day of the week close). We’ve been asked a few times about whether it is strictly necessary to trade at or near the close on Monday. Over the years we have done a lot of testing of various parameters for market timing, ETF trading and stock rotation strategies.
One of the things we have studied extensively is what time at which it is best to trade our systems. The systems are designed to be traded at the close on the day after a signal, but does it make a difference if we trade at, say, the opening of the next day after that? Our backtesting has indicated that for the systems there is not strong advantage to trading exactly at Monday’s close.
Going back, using a few years of data, the differences between trading at Monday’s close or Tuesday’s open are not significant – although, obviously, week-to-week, there are variations, the differences seem to even out over time if trading is done consistently at Tuesday’s open. In fact, we are so unconcerned with the exact time of trading, that we often trade using the morning window trade at FolioFn (around 11 AM) – and we use the Monday morning window.
ETF Trading System Results (Applies to the TSP Systems as Well)
We just posted a new FAQ (the FAQ link is also available at the bottom of each page of the site). We are trying to answer a few common questions:
When do the ETF and TSP systems trade? How do you calculate the week to week results? Why does the system report a gain for the week when the new trade is down?
The systems trade at the close of the first trading day of the week (usually Monday). This means that when a system begins a new trade, the old trade is closed out at the Monday close and the new one is entered at the Monday close. Since we calculate the returns and post the signals on the weekend, the system returns are calculated on a week to week basis – Friday close to Friday close.
Thus, on a week where there has been a new trade, the weekend update takes into account what the old trade did on the Monday, and what the new trade did on Monday close through the Friday close. This explains why it is possible that the system will show a gain for the week even though the new trade, as of the Friday close, is down. Of course, the converse is sometimes true – the system will show a loss for the week even though the new trade is up for the week.
To summarize – the system results we post take into account the performance of the old trade on the Monday when a new trade is entered. The system results show week-to-week results calculated Friday-to-Friday even though the trades are closed and entered on Monday at the close.