Anyone tried this?

Discussion in 'Strategy Building' started by dpg2020, Apr 12, 2006.

  1. dpg2020


    I'm a new trader and had an idea. I'm sure I'm not the first to post this particular idea. Here goes:

    -If one were to take the 10 of so areas comprising the S&P 500 and find the corresponding ETF ie...Healthcare, Energy, Technology, Consumer Staples. Materials, etc, and then,
    once a month, simply buy and/or reallocate your capital to the top 3 performing ETF's in that sector for the previous month, it seems to me that this may actually work quite well.

    -It seems to me that the really strong areas tend to continue to show continuing strength or weakness.

    Has anyone ever tested such a system?
  2. It would tend to work well in a strongly trending environment. You'd still want to limit losses in case there's a big intra-month reversal. You could backtest different sectors and see how strong the trend persistence is. Instead of buying the strongest sectors by themselves, you could also spread-trade the strong and weak sectors against one another for even more bang-for-the-buck.