Some Reddit threads have said the results for this strategy are bogus. But it sounds good. When there are enough distribution days that signify a top, go into cash to avoid the correction. According to IBD, a bear market is when the SP500 or Nasdaq decline 20% or more. An interim correction is when one of the 2 indexes declines 5%-15%. What do you guys think? This is taken from Investors.com: "IBD's Market Pulse feature has a long history of recognizing shifts in market direction early on to help investors maximize gains in uptrends and protect their portfolios in downtrends. Now we've developed a simple method for trading market index ETFs based on the market direction posted daily in Market Pulse. HOW IT WORKS Buy a market Index ETF (QQQ was used in the study) immediately after a new uptrend is announced in Market Pulse and employ these simple allocation rules: Market Direction % Invested Confirmed Uptrend 100% Uptrend Under Pressure 50% Market in Correction 0%
A better strategy is trading momentum on sector etfs. You can overlay a discretionary approach to time beta as well (based upon valuation or where we are in the cycle). But I know a few sma managers that run strategies like this for clients and it does well.
I am not hugely impressed with IBD. The IBD top 50 ETF, FFTY, barely beats SPY returns, and badly trails QQQ over 1 year and 5 years https://tinyurl.com/284tcd8h
The FFTY is considered Mid-Cap Growth so that explains why it gets blown out by the QQQ but sadly it even underperforms the iShares MId-Cap Growth ETF (IWP) long-term. The FFTY is up 92% since inception (4/2015) vs. the IWP which is up 131%. That explains the low daily volume and the 2 Star ranking by Morningstar. Seems like in this market the best strategy is the sector rotation methodology since there is an amazing amount of dispersion within the sectors. I believe if you just owned the XLE & XLF you are up about 45% & 25%, respectively. I remember "Pfizer Monday" aka 11/9/2020 when the markets shot up like 5-8% premarket -- in retrospect that was the day to rotate away from tech & into the Financials & Energy. XLE +67% XLF +35% XLK +20% I'm sure if you understand subsectors better you probably could do even better (I personally am not an expert in any of them).
%% Better than an average/ but long term buy + hold most likely beats it; QQQ and anything else= not suitable for all investors.......................................[Delayed edit;Trend =friend /distribution days seem a bit confusing the way all his examples have been over the years/ but could be just me. I use a 50/200day moving average, weekly charts/PSAR/Sept Sells \or simply sell some FTEC today , because i like to get paid every now + then........................................ PS ;HIS books are better/more complete than that.,]
I've traded leveraged index ETFs off and on for 10-15 years. I was interested in IBD's method when it first came out, but found it lagged my own signals by 1-4 days. I'm nevertheless interested when IBD says "Confirmed uptrend" because it means I better be all in by then. If the uptrend fails, the people who follow IBD take a loss while I breakeven. They are pretty speedy about bailing with the onset of a correction, but sometimes it's obvious, sometimes they're wrong, and they don't seem to have a method for taking profits before that hammer falls. IMO longer term holds would beat the IBD method, but there's nothing saying you couldn't do both.
In theory the IBD stocks should do very well but as you can see from their ETF it doesn't work out correctly. Williams (creator of IBD & the CANSLIM methodology) just quantized the momentum work of Nicolas Darvas in the 1950s but I think stock picking is still an art form and not just a science. I would say the thing that IBD got right was to always be in futuristic industries but the execution is less than stellar. If you look at the composition of the FFTY ETF, it has only 22% tech & biotech. It has 61% cyclical sectors like banks & consumer cyclicals. That is not where the action is if you are building a hyper growth ETF. The truth is that Cathie Wood & her ARK funds are far superior for mid-cap growth. Its not even close.
%% Actually they do/ plenty of ways to profit /swingtrader....; may want to read his books[ i see you have not] or thier newspaper every now + then. However as you noted his ''cup with handle pattern'' does get in late usually on his charts. MOST likely buy every month for forty years on his good mutual funds may beat his ETF method........................................................................ NOT a prediction.
A potential problem that I see with IBD's ETF strategy is that it doesn't mention anything about position sizing. There's also no stop loss mentioned either. Any idea how much money I should risk per trade?
%% Its in his 444 page book+ books; + risk $7 or 8 max per position to make $21 or $24/as a general guideline. Or risk 8% to make 24%...................................................................................................Especially with his small cap system\ tighter stop$ tends to be counterproductive. AND as always NEVER risk money you cant afford to lose. NOT suitable for all investors.