Active short term ETF investing with 21% annual return
In trading frequently, with many entries and exits within a month, obtaining monthly returns of 5% on average, I try to make an annual return of 21%.
How can I obtain an annual return of 21%?
For this I have created a strategy. This strategy is only feasible with ETF’s. Why that is? The main reason is that ETF’s tend to move within a bandwidth. An index or ETF will never fail, just as prices of raw materials never go below a certain price point.
In most cases ETF’s move slightly upward within a bandwidth in which prices may go up and down swiftly. That is a kind of security investors in single shares or options will not experience.
In buying ETF’s on a temporary low within the bandwidth and sell them at higher prices one is able to trade with a limited amount of risk. Prices of ETF’s move in waves. These waves may be large, stretching over periods of years, or small, stretching among months.
By actively following 137 ETF’s on a daily basis I try to detect small dips in ETF prices. Whenever I locate such a dip I calculate a possible increase of the price and the chance that this increase will appear within 1 month.
I use a variable weighed probability calculation in establishing this probability. Of course it will not always be possible to make the forecasted return within 1 month, but that is not needed to obtain my annual goal of 21% return on investment.
Another important influencer of course is the underlying movement of the markets. A market crash or a bear market will impact our returns. But it is not to eliminate all risk, that is impossible, it is all about using a sound strategy and implementing a well thought of action plan. So, there are no guarantees.
All transactions, older than 1 month, are available here for free. So you can see for yourself whether results in the past have been positive or negative.
After selling an ETF I reinvest the proceeds (including profits) in another ETF. By investing higher amounts again and again I am able to obtain these large annual returns.
Here you will find an example with a 5% return and reinvesting it in other trades (discarding transaction fees as this is heavily depended upon the broker you use). Dividend payments are neither included. I start with an investment of € 10.000,-
With a time-span of 1 year there have been 4 profitable short term transactions needed to obtain an annual return of 21% (excluding costs).
This example starts with an initial investment of € 10.000,- but you can do the same with lower amounts, but you will have to keep your broker fees in mind. It is also necessary to spread your budget among different ETF’s as you can always experience some drawbacks.
Investing in ETF's like a grasshopper
As soon as I have sold an ETF I am trying to buy another interesting ETF. But it must be possible to enter another ETF of course. That is why I follow many different ETF’s divided among 12 ETF groups.
As an example, I use the popular index tracking ETF’s in group A. In most cases it makes no sense to sell an ETF index on let’s say the German Dax and then reinvest the proceeds in a French CAC ETF or Dutch AEX as these 3 indices move in similar ways.
But a market sector or basic materials ETF may just be in a price dip with a high potential of an upward movement. As a real grasshopper I hop from one ETF to a very different one. Following at least 3 to 5 ETF groups is in my opinion crucial for a good annual return of your investment.
My main object is to obtain relatively small returns in short periods of time. By doing this it is almost impossible for me to sell manually. That is why I always work with limit orders. I will add the expected return to the buying price and I will set this price as a limit order. Whenever I sell something I will put this transaction on my website.
Added buying until 5 positions maximum
If after my initial entry the price of the ETF will go down further I will buy again, adding to my initial purchase. I will follow this strategy to a maximum of 5 positions.
While investing in stocks or options this added buying does not work but due to the bandwidth effect of ETF’s this strategy works fine. In real terms it shows that with the following added buy-in the chance of an accelerated profit increases.
Suited for any investor?
This strategy is mainly aimed at the active investor who follows one’s positions on a daily basis. In short term investing many transactions are needed, therefore a cheap broker is needed (mind possible minimum transaction fees per order).
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