A short-term strategy based on volume

December 29, 2015 01:00 PM

Putting it all together

There is nothing complicated about any of this, nor does it use sophisticated math, although I’m sure that a fancy formula could systematize this strategy. You probably can get the signal off a chart that shows volume along the bottom. The only real problem is tracking enough markets to get diversification. In this example, we’ll test a broad set of 63 liquid exchange-traded funds (ETFs). “Market universe” (below) shows the breakdown. 

Here’s the interesting part. When we just list all the trades in the order they occur, without regard to how much money we have to invest, but with each trade assuming a $10,000 exposure, we get the results in “Volume system equity” (below). Given that the 16 years of data covers some very extreme conditions, the results are good.

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