Timing of Technical Indicators

on Industry ETFs

Siteng Jin
Quantitative Analyst Assistant Intern
China Universal Asset Management Co., Ltd

Winning
Chance

Classi'ication

Pro'it/Loss
Ratio

MACD
ASI
Trending

DMI

Classi'ication

DMA

RSI

+DI goes up acorss -DI

+DI goes up across DI & ADX
ADX 50 & ADX & Price


+DI goes down across -DI
+DI goes up acorss DI & ADX
ADX 50 & ADX & Price

KDJ
Over bought/sold
W&R

CCI
routing

BOLL

Back Testing

Price goes up across M

Price M & Price goes up across U
Band gets wider & Price

Price goes down across M
Price M & Price goes down across D
Band gets wider & Price

DIFF 0 & DEA 0 & DIFF

DIFF goes up across DEA
DIFF goes up across zero


DIFF 0 & DEA 0 & DIFF
DIFF goes down across DEA
DIFF goes down across zero

K 30 & D 30 & K
K goes up across D
K, D 30 & K goes up across D


K 70 & D 70 & K
K goes down across D
K, D 70 & K goes down across D

Winning Chance

Down%Trends%Winning%Chance%

Up#Trends#Winning#Chance#
35.00%$

30.00%$

KDJ

30.00%$

25.00%$

25.00%$

20.00%$
53Days$

53Days$

20.00%$

103Days$

103Days$

15.00%$

203Days$

203Days$

15.00%$

503Days$

503Days$

10.00%$

10.00%$

DMI

5.00%$

5.00%$
0.00%$

0.00%$
MACD$

KDJ$

DMI$

MACD$

BOLL$

KDJ$

DMI$

BOLL$

Odds

Down%Trends%Prot/Loss%Ra2o%

Up#Trends#Prot/Loss#Ra2o#
2.50#

2.50#

2.00#

2.00#
51Days#

1.50#

51Days#

1.50#

101Days#

101Days#
201Days#

1.00#

201Days#

1.00#

501Days#

501Days#
0.50#

0.50#

0.00#

0.00#
MACD#

KDJ#

DMI#

BOLL#

MACD#

KDJ#

DMI#

BOLL#

Strategy Flow Chart

Designed a Pairs Trading

Strategy on Negative
Correlated ETF indexes by
applying technical
indicators on spread ratio.

Define Spread Ratio Index:



,where is mean of s and
is standard deviation of s.

If%exceeds%prot/
loss%control%

Start%

Long%0.5%Stock%1%
Short%0.5%Stock%2%

If%DMI%sends%Down0
Trend%Signal%on%s%

Short%0.5%Stock%1%
Long%0.5%Stock%2%

Clear%posi>on%

Update%Total%
Net%Asset%

a.

Pairs%Trading%Asset%Time%Series%
220%$

b.

200%$
180%$

Asset%

If%KDJ%sends%Up0
Trend%Signal%on%s%

c.

160%$

d.

Trading Rules


If there already exists a same position
as the signal indicates, d o nothing.
If there already exists an opposite
position as the signal indicates, clear
the previous position and enter a new
one.
Hold equally weighted stock pair at
anytime of trading.
Transaction Fee = 0.05%

140%$
120%$
Energy$vs.Medicine$
100%$

Energy$vs.$Finance$

80%$
9/22/2011$

Energy$vs.$ConsumpAon$
1/22/2012$

5/22/2012$

9/22/2012$

1/22/2013$

5/22/2013$

9/22/2013$

1/22/2014$

Correla.on*Distribu.on*

Return'Distribu,on'
6%#

0.5"
0.45"
0.4"

Correlaruib*Debsurt*

0.35"

Loss Control

5%#

Strong Negative
Correlations

4%#

0.3"
3%#

0.25"
0.2"

2%#

0.15"
0.1"

Profit Control

1%#

0.05"
0"
)1"

)0.5"

0"

0.5"

0%#

1"

*0.02#

Correla.ons*

*0.01#

0#

0.03#
Return'

Pairs+Trading+Statistics
Index

Number+of+Trades

Winning+Chance P/L+Ratio Max+Withdraw Final+Return+(Annulized) Return+Skewness Max+Return Max+Lost

Energy+vs.Medicine

412

21.61

49.27%

1.6445

R10.26%

26.16%

0.9039

3.71%

R1.91%

Energy+vs.Finance

429

21.49

53.15%

1.5916

R9.90%

38.82%

0.7053

3.67%

R1.66%

Energy+vs.Consumption

389

23.56

50.39%

1.5548

R8.43%

22.62%

0.7541

3.35%

R1.78%

Average

410

22.22

50.94%

1.5970

R9.53%

29.20%

0.7878

3.58%

R1.78%