High Probability ETF Trading Method

ETF has become popular in overseas market, particularly the US market.  In Singapore, we are beginning to see more ETF that can be traded over the stock exchange.  However, the daily trade volume is no where near those that are traded in US.   Those that want to trade ETF may be better off doing it with a US broker.

There are numerous methods to trade the ETF.  One of the easier methods to follow it the one that is made popular by Larry Connors and Cesar Alvarez in the book High Probability ETF Trading.  The method is pretty simple and is described below:

Entry rules:

1. The ETF is above the 200 day moving average.
2. The 2 period RSI is below 25 for two days in a row.  Buy 10% of your position on the close.
3. If the prices are lower on the close than your previous entry price, any day you’re in your position, buy 20% more of your position.
4. If prices are lower on the close than your previous entry price, any day you’re in the position, buy 30% more of your position
5. If prices are lower on the close than your previous entry price, any day you’re in the position, buy 40% more of your position.

Using this 10%, 20%, 30%, 40% scaling in approach (also know as 1-2-3-4),  you now have a full position in a very oversold ETF.

Exit rules:

6. Exit on the close when the 2-period RSI closes above 70.