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Larry Connors Daily Battle Plan 101: How to Find the Best ETFs to Trade Every Day

  • May 13, 2011
  • Larry Connors

Here’s the first in a four-part series on ETF trading and Larry Connors Daily Battle Plan.  To learn more about Larry Connors’ Daily Battle Plan, click here.

We’re going to talk about trading ETFs. We’re going to tie it into how we go about looking at ETFs, applying it to the Daily Battle Plan.

A number of people over time have sent e-mails and said, “How do you go about selecting your ETFs each day?” Because within the Battle Plan, as opposed to building a portfolio with multiple ETFs, we select one and sometimes two ETFs at most at any given time.  People said, “How do you go about making that selection? What is the process?”

Battle Plan Model Portfolio – More than 80% Correct Since October 2008

We have a Model Portfolio that we put into place since October of 2008. If we take a step back and remember October 2008, that was one of the worst months in a decade for the market.

SPY1 chart

You’ll remember in the first week of October, the market really started to accelerate to the downside. It was a pretty treacherous period of time.  Over November, December, January, February, until it bottomed out in March, it was pretty treacherous to the downside.

SPY2 chart

And then, ultimately, the market transitioned quickly from a bear market to a rising market. It bottomed in March and rose fairly quickly. And the Battle Plan has had a chance to see these different market conditions. 

What we want to do, and what you want to do as a trader with your own money, is ultimately to be able to have certain rules in place to help you answer the questions: is a market in an uptrend? Is a market in a downtrend? And how do I appropriately allocate capital during each of those markets?

Find and Trade the Best Opportunities in ETFs Every Day

I have a single-minded philosophy when it comes to the Battle Plan. I identify what I consider to be the best opportunities in Country Fund ETFs. 

Why do I like Country Fund ETFs? Over periods of time when you see the test results, you see that they tend to be more predictable than most of the ETFs that are out there. That is one thing that I especially like – especially when it comes to the backtesting. On a lookback basis, they tend to be more predictable.

I used to kid up until a few years ago that the main reason why I like Country Fund ETFs is that there is no chance of them going out of business. Sadly, that’s no longer true today. We know that countries can go out of business. But with that being said, a Country Fund ETF usually tends to be safer than a sector ETF. That’s why I tend to gravitate more toward the Country Fund ETFs.

Country Fund ETFs are Great – U.S. Country Fund ETFs are Greater

Now with that being said, where I really tend to gravitate among the Country Fund ETFs in the Battle Plan is especially in the ^SPY^ and the ^QQQ^. And the reason I do that is: #1: the U.S. is still number one. They may say that China is going to overtake the U.S. and all these other things. But the bottom line is that the U.S. is still the number one country in the world. #2 when you take a look at the backtesting, when you look at mean reversion strategies and apply them to the SPYs and the QQQs, they test best. There is no other vehicle that tests better than the SPYs and the QQQs when you are using short term, mean reversion strategies.

To read Part 2, click here.  Part 3 is here.  The fourth and final part of the series is available here.

Larry Connors is founder and CEO of TradingMarkets.com. To learn more about Larry Connors Daily Battle Plan, click here.