Mutual Fund Long/Short Pairs

Open-end mutual funds price once a day, at end of day. Therefore, trying to market-time them seems to mean that one would always be a day late getting in/out as opposed to trading their ETF equivalents. If you’re a trigger-fast trader trying to surf every price ripple, that lag could be a concern. But if you’re a west-coast, late-to rise person who doesn’t want to live on New York hours in order to participate in financial markets, and if you’d be happy to catch just the intermediate waves and trends, then end-of-day pricing might actually work in your favor. But entry/exit rules would still be needed. So let’s build some. First, some background.

Typically, open-end mutual funds are marketed as investment vehicles, and that marketing is reinforced with mandatory holding-periods as long as 90 days and with the imposition of short-term redemption fees. However, Rydex, Profunds, and Direxion market a couple hundred mutual funds that impose no ST redemption fees. Some of them are leveraged and have inverses, and they can be traded at Schwab with just a $100 minimum initial purchase. That takes care of the first leg of any trading system, What? So let’s focus on the second leg, When?

When HA bars are applied to open-end mutual funds and their single, end-of-day pricing, something interesting happens. The wicks disappear, and the ‘close’ reported by the HA bar is the actual price for that day, not an averaged one. Furthermore, when HA bars are applied to open-end mutual funds, some smoothing still happens in terms of how the bars get sized and painted, and those differences make trends easier to see.

Here’s an example. Compare the mid-February portion of each chart, specifically Feb 23 and Feb 27.

That smoothing makes a rule set easy to suggest. ‘Buy’ when the bars switch from ‘red’ to ‘green’ AND when the other indictors you’ve chosen to use confirm. ‘Sell’ when the bars change from ‘green’ to ‘red’ and your other indicators confirm.

Here’s an example of ‘green’ bars turning ‘red’, but the other indicators not confirming.

A word about those indicators. TSI and StochRSI can be made to provide nearly the same crossover signals. It’s just a matter of tweaking their parameters until a match is found. But Stoch RSI is a bit more colorful and dramatic than TSI, and I like colorful charts. The version shown was done with BarChart’s defaults. But the SAR indicator is a speeded version whose parameters are (15,3) which is just an eyeball guess rather than the product of extensive backtesting.

Lastly, here’s a short list of some tradable mutual fund pairs:


Caution: Some are leveraged 2x. Some are highly correlated. Do your Due Diligence.


Like the Tetter Totter list. Well review the pairs. The TSI’s are spot on.


Had to use Heikin-Ashi charts to view the Muni’s.

Again, good job with the kewl list.


I’m bumping this thread up in the queue, because I found a broker who lets some funds be traded with $0 initial purchase and no ST redemption fee, thus making running experiments affordable.

The downside of (open-end) mutual funds vs their closed-end and exchange traded cousins is that OE mutual funds price once a day at end of day. Thus, one is always lagging by a day getting in or out. OTOH, I think that lag could be overcome if one’s entry/exit rules were built to deal with that fact. So, that’s this weekend’s project.

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