Wednesday, May 14, 2008

Looking for Mr. Goodbar - Part 3

First, an important reminder about the new US currency for those of you who still have any of the old stuff left.
For today's analysis we look at relative performance of a basket of high liquidity ETFs reflecting a variety of sectors.
The basket was tested using the same simple RSI long only stratgey (3,90,15) with no stops and looking at 5 and 30 minute bars.
The results are interesting on a number of points.
Most importanly, the best profits from this ETF basket are produced on 30 minute bars, a departure from yesterday's study where the 5 minute bars showed the best risk/reward. The sole exception is the XLE, whch showed a modest profit bias for the 5 minute bars. . . a situation which I'll explore further tomorrow.
Of the top 5 performers on 30 minute bars, 3 are the worst performers on 5 minute bars (DIA, SOY, QQQQ). This may tell us something about the effects of order flow management algorithms as well as the tempering effect of indices versus single stocks. Since one of our main goals is to develop some good risk/rewards candidates for daytrading, we might have to adjust our thinking about the relative saftey of the ETFs when we consider the tradeoff in terms of potential short term profits.
There are only 4 ETFs from this list that show positive 5 and 30 minute bar alignment: IWM, XLE, SMH and XLB, and strictly from a risk management point of view, these are trading candidates that may warrant a closer look.

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