{"id":5045,"date":"2017-06-07T05:46:20","date_gmt":"2017-06-07T09:46:20","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=5045"},"modified":"2022-04-06T15:09:51","modified_gmt":"2022-04-06T19:09:51","slug":"trend-reversion-etf-strategy","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/trend-reversion-etf-strategy\/","title":{"rendered":"Trend Reversion: Can A Winning ETF Strategy Really Be This Simple?"},"content":{"rendered":"<p><em>Editor&#8217;s Note: The following is a guest post from Jack Loftis of <a href=\"https:\/\/etfswingtrader.net\" target=\"_blank\" rel=\"noopener noreferrer\">ETFSwingTrader<\/a>. Enjoy!<\/em><\/p>\n<p>Nine years ago, I began trading the \u201cmean reversion\u201d that I still use today.<\/p>\n<p>I was very unfamiliar with\u00a0this type of strategy, and it seemed awkward to me.<\/p>\n<p>Nearly a decade later, I have a new name for my ETF trading strategy: <em>\u00a0Reversion To The Trend.<\/em><\/p>\n<p>In addition to becoming second nature, this trading strategy has also generated solid profits &#8212; trade after trade, month after month, year after year, and with over 700 trades publicly posted.<\/p>\n<p>The graph below is a cumulative log of all ETF trades I have made so far this year.<\/p>\n<figure id=\"attachment_5050\" aria-describedby=\"caption-attachment-5050\" style=\"width: 650px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-5050 size-full\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/CumProfit2017.png\" alt=\"Jack Lofits ETF trade profits\" width=\"650\" height=\"442\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/CumProfit2017-110x75.png 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/CumProfit2017-300x204.png 300w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><figcaption id=\"caption-attachment-5050\" class=\"wp-caption-text\"><em>Jack&#8217;s ETF trades in 2017 (so far)<\/em><\/figcaption><\/figure>\n<p>As you can see, my ETF trades\u00a0(all of which were\u00a0shared with subscribers of <a href=\"https:\/\/etfswingtrader.net\/etf-swing-trading-newsletter\" target=\"_blank\" rel=\"noopener noreferrer\">my service<\/a>) have generated a steady <strong>net worth gain of nearly 4%<\/strong>\u00a0in less than six months.<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/trend-reversion-etf-strategy\/#Technical_Swing_Trader\" >Technical Swing Trader<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/trend-reversion-etf-strategy\/#Trend_Following_vs_Breakout_Trading_vs_Trend_Reversion\" >Trend Following vs. Breakout Trading vs. Trend Reversion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/trend-reversion-etf-strategy\/#Winning_ETF_Trend_Reversion_Strategy_How_It_Works\" >Winning ETF Trend Reversion Strategy: How It Works<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/trend-reversion-etf-strategy\/#Works_Great_For_Options_Too\" >Works Great For Options Too<\/a><\/li><\/ul><\/nav><\/div>\n<h3><span class=\"ez-toc-section\" id=\"Technical_Swing_Trader\"><\/span><strong>Technical Swing Trader<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The reason my trend version strategy was awkward for\u00a0me at the start was because I was conditioned to other, more common styles of trading.<\/p>\n<p>So, let&#8217;s compare several typical trading methodologies to contrast what I am doing.<\/p>\n<p>In ancient times, we compared to primary ways of investing: Fundamental and Technical.<\/p>\n<p>Fundamental investing (for the longer term) involved detailed analysis of each company and its\u00a0financial prospects.<\/p>\n<p>Technical trading, however, relied on charts of the price movement itself, not inferences about future price based on \u201cfundamentals.&#8221;<\/p>\n<p>My ETF and ETF option trading strategy is a technical approach commonly known as <a href=\"https:\/\/www.morpheustrading.com\/blog\/swing-trading-vs-day-trading\/\" target=\"_blank\" rel=\"noopener noreferrer\">swing trading<\/a>.<\/p>\n<p>This means I look for\u00a0short-term \u201cswings\u201d in an ETF, based on what its price chart tells us.<\/p>\n<p>Swing trading works great for me because it fits my personal disposition and attention span.<\/p>\n<p>My typical holding time is 5 days; I&#8217;m safely in cash the rest of the time.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Trend_Following_vs_Breakout_Trading_vs_Trend_Reversion\"><\/span><strong>Trend Following vs. Breakout Trading vs. Trend Reversion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Within the realm of technical swing trading, there are a few popular trading strategies to choose from.<\/p>\n<p>So, let\u2019s look briefly at the other, perhaps more familiar, approaches to short-term trading.<\/p>\n<p><strong>Trend Following <\/strong><\/p>\n<p>Trend following is a proven\u00a0method of identifying large trends in an equity\u2019s price, hopping on that trend, and holding on for what is hopefully a long ride.<\/p>\n<p>The <a href=\"https:\/\/turtletrader.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">Turtle Traders<\/a> were a famous example of this approach, but this method involves many false starts (and small losses) before one of these trends is discovered.<\/p>\n<p>How many veins of gold must the prospector try before he finds the one that goes on &#8220;forever?&#8221;<\/p>\n<p><strong>Breakout Trading<\/strong><\/p>\n<p>Breakout trading involves finding a stock with solid momentum that begins to pause and build a sideways base.<\/p>\n<p>When the stock rallies above resistance and &#8220;breaks out,&#8221; breakout traders jump into the stock.<\/p>\n<p>If you\u2019ve picked the right stock, then a great deal of momentum has built up in the stock while it was building its strength.<\/p>\n<p>Breakout trading is like grabbing a tiger as it escapes its cage, then holding on for dear life.<\/p>\n<p>This trading strategy requires patience, but often results in double-digit percentage returns.<\/p>\n<p>As you may know, Breakout Trading is the basis behind the Morpheus trading strategy employed every day in <a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener noreferrer\"><em>The Wagner Daily<\/em><\/a> newsletter.<\/p>\n<p>The infamous <a href=\"https:\/\/www.morpheustrading.com\/blog\/how-to-cup-handle-video\/\" target=\"_blank\" rel=\"noopener noreferrer\">cup and handle<\/a>\u00a0formation is one well-known example of a breakout trade setup.<\/p>\n<p><strong>Trend Reversion<\/strong><\/p>\n<p>Both strategies above can be\u00a0extremely successful when applied with a high level of discipline and patience.<\/p>\n<p>But what if you are an impatient person who is not comfortable with the longer holding times required for Trend Following and Breakout Trading?<\/p>\n<p>What if you possess\u00a0a temperament that drives you to only be satisfied with the sweetest part of a stock or ETF&#8217;s move?<\/p>\n<p>In these cases, Trend Reversion may be the perfect strategy for you!<\/p>\n<p>Rather than build positions in a number of equities and patiently wait for them to break out into a strong profit, I prefer to make<strong> small percentage profits on trades that end up in the green 90% of the time. <\/strong><\/p>\n<p>This is also known as \u201chigh probability\u201d trading.<\/p>\n<p>By the way, this is not some \u201cbright idea\u201d I personally dreamed up one late night.<\/p>\n<p>Larry Connors, famed hedge fund manager and system developer, created this basic approach that has been tested systematically and exhaustively.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Winning_ETF_Trend_Reversion_Strategy_How_It_Works\"><\/span><strong>Winning ETF Trend Reversion Strategy: How It Works<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Generally, I am dealing with an ETF that has a general directional trend going, and has briefly pulled back from that trend.<\/p>\n<p>I jump on this pullback and hold on for the 5 days or so it takes to \u201crubber band\u201d back to its ongoing trend.<\/p>\n<p>Then, in a whisker, I take my profit and am off in search of my next victim.<\/p>\n<p>And with &#8220;inverse&#8221; ETFs, you can profitably trade when the market (or an individual ETF) is moving down as well.<\/p>\n<p>Using <a href=\"https:\/\/www.investopedia.com\/terms\/l\/leveraged-etf.asp\" target=\"_blank\" rel=\"noopener noreferrer\">leveraged ETFs<\/a>, you can multiply your dollar profit as well.<\/p>\n<p>Of course, buying something \u201con the pullback\u201d is an approach we hear about all the time.<\/p>\n<p>But instead of doing this based on \u201cfeel,\u201d I select and execute these pullback maneuvers in a very precise and rule driven fashion; this means<strong>\u00a0you can easily replicate my trading system.<\/strong><\/p>\n<p>To increase my win rate (which I&#8217;ve maintained\u00a0at over 90% since August of 2011), I use a well-tested, methodical strategy of &#8220;averaging down&#8221; &#8212; progressively building trades, rather than jumping in all at once.<\/p>\n<p>All this results in a well-focused trading approach in which I am only in 2-3 trades at a time, but committed with a large position of each ETF in my portfolio.<\/p>\n<p>This requires a very well-honed selection process, as well as careful trade management of positions after they have been\u00a0established.<\/p>\n<p>But with my daily\u00a0<strong><a href=\"https:\/\/etfswingtrader.net\/etf-swing-trading-newsletter\" target=\"_blank\" rel=\"noopener noreferrer\">newsletter<\/a> <\/strong>service, I have made this winning trading system dead simple to follow!<\/p>\n<p>One hour before the market closes, I simply send you a Final Trade email with the trades I am taking (or selling or holding) that day.<\/p>\n<p>I do my trades with Market on Close orders to simplify the ETF trading process; it could not be easier to do.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Works_Great_For_Options_Too\"><\/span><strong>Works Great For Options Too<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>If you have a smaller account that requires exceptional performance, please note that\u00a0I also provide OPTIONS versions for many of\u00a0these ETF trade setups.<\/p>\n<p>So far this year, <strong>I have won every option trade since the first week of 2017.<\/strong><\/p>\n<p>That equates to 21 option trades, with an average gain of &gt;20% per trade.<\/p>\n<p>Here&#8217;s the proof:<\/p>\n<figure id=\"attachment_5048\" aria-describedby=\"caption-attachment-5048\" style=\"width: 633px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-5048 size-full\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/Options-Trades-YTD.png\" alt=\"Jack Loftis option trades\" width=\"633\" height=\"517\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/Options-Trades-YTD-110x90.png 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/Options-Trades-YTD-300x245.png 300w\" sizes=\"auto, (max-width: 633px) 100vw, 633px\" \/><figcaption id=\"caption-attachment-5048\" class=\"wp-caption-text\"><em>Jack&#8217;s option trades in 2017 (so far)<\/em><\/figcaption><\/figure>\n<p>If you have a small account, you may also be interested to know that I began trading an actual $5,000 account this year, withdrew $4,000 in profit, and still have a $5,000 account balance.<\/p>\n<p>Here&#8217;s a screenshot from my broker that shows it (press image to enlarge):<\/p>\n<figure id=\"attachment_5052\" aria-describedby=\"caption-attachment-5052\" style=\"width: 650px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/IB-statement.jpg\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-5052\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/IB-statement.jpg\" alt=\"Jack Loftis account statement\" width=\"650\" height=\"351\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/IB-statement-110x59.jpg 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/IB-statement-300x162.jpg 300w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/IB-statement-768x415.jpg 768w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/06\/IB-statement-1024x553.jpg 1024w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><\/a><figcaption id=\"caption-attachment-5052\" class=\"wp-caption-text\"><em>Jack&#8217;s option account statement<\/em><\/figcaption><\/figure>\n<p>After seeing the all the winning trades above, let&#8217;s get one thing clear: I do not win on EVERY trade, but I do consistently keep up a win rate of &gt;85%.<\/p>\n<p>Do you think you personally\u00a0could make money with an approach that has been fine tuned for the past 8 years to consistently yield the kind of outstanding results discussed above?<\/p>\n<p>I&#8217;ve reached the point where I can now support myself with my trading profits.<\/p>\n<p>Start your<strong> <a href=\"https:\/\/etfswingtrader.net\/etf-swing-trading-newsletter\" target=\"_blank\" rel=\"noopener noreferrer\">trial subscription<\/a> <\/strong>now to find out if this winning system is right for you too.<\/p>\n<p>As always, please\u00a0feel free to personally\u00a0<a href=\"https:\/\/www.etfswingtrader.net\/contact-us\" target=\"_blank\" rel=\"noopener noreferrer\">contact me<\/a> by email or phone with any questions or comments.<\/p>\n<p>Cheers,<\/p>\n<p>Jack Loftis, PhD | founder<br \/>\n<a href=\"https:\/\/etfswingtrader.net\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2017\/04\/header-logo-110x54.png\" alt=\"ETF Swing Trader - Jack Loftis\" width=\"70\" height=\"34\" title=\"\"><\/a><\/p>\n<p>PS &#8211; Join nearly 13,000 followers of my\u00a0<a href=\"https:\/\/stocktwits.com\/ETFswingtrader\" target=\"_blank\" rel=\"noopener noreferrer\">StockTwits feed<\/a>\u00a0to see the thousands of trade ideas I have publicly shared over the years.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Editor&#8217;s Note: The following is a guest post from Jack Loftis of ETFSwingTrader. Enjoy! Nine years ago, I began trading the \u201cmean reversion\u201d that I still use today. I was very unfamiliar with\u00a0this type of strategy, and it seemed awkward to me. Nearly a decade later, I have a new name for my ETF trading [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-5045","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5045","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=5045"}],"version-history":[{"count":1,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5045\/revisions"}],"predecessor-version":[{"id":11884,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5045\/revisions\/11884"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=5045"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=5045"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=5045"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}