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A Practical Guide to ETF Trading Systems by Anthony Garner

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A Simple Mechanical System

The aims of this chapter are–

  • To introduce rule-based trading with an example of a very simple mechanical system, which sets out exact rules as to when to buy and when to sell a security. (More complex systems will be introduced in Part 2 of this book.)
  • To test the efficacy of the system as measured against the benchmark of a buy-and-hold approach.

A basic rule-based system

The rules

Let us take a rule-based trading system of extreme simplicity. Here are the rules:

  1. Entry: When the closing price of a stock crosses above a double smoothed 200-day moving average of the closing price of that same stock, buy the stock at the open the next morning.
  2. Exit: When the price of the stock closes below the 200-day ...

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