Any strategies for using RRG to build sector rotation portfolios?

TSellers

I was wondering if I could put together any sector rotation strategies using RRG charts, and wondered if anyone was using RRG for this purpose? For example, my broker (Scotia iTrade) offers a number of commission free ETF's that I placed in a chart list. I was thinking it would be interesting to use RRG on that list and see if I could build a portfolio based on re balancing it weekly or monthly using strength and direction from RRG, but not sure how to go about developing a rules based strategy that would make sense.

markd

Maybe @Julius_RRG can help with this.

Julius_RRG

Hi Tsellers.

The straightforward answer to the question would be "yes that is certainly possible" and I know people who are actually doing that, or at least as part of their process.

Especially the latter is important in my opinion because, as you can imagine, I am all in favor of using RRG but rather NOT as a stand-alone tool. I always tell people I prefer to see them using RRG as a piece of the (investment) puzzle that they have to solve. But definitely, a piece that will help you get guidance and see the "big picture".

As RRG works in multiple time frames and can be used in a very aggressive way as well as more conservatively there is no "how to" or "predefined strategy" that I could give you.

I have done a lot of tests where you buy the top-n% symbols from a universe and rebalance periodically. That usually gives decent returns and almost always beats the benchmark but it will not "shoot out the lights" also the smaller the % the higher the risk. As such strategies are "always in the market" the drawdowns can also be large (usually less than the benchmark, but still).

Other tests that we have done is looking for turns of RRG-Heading into the 0-90 degree area which seems to work well as a signal and yield good returns as it picks up turns of the relative trend. I had this as part of my presentation at ChartCon 2016.

My advice would be to tie the analysis of RRG with your investment process and use it to confirm or generate trade possibilities. Confirm ideas by looking at the trend (quadrant, the direction of the tail) or generate ideas by watching changes in RRG-Heading and the position on the RRG chart.

Hope this helps,
Julius

TSellers

Thanks for that Julius!

I did watch your previous chartcon video as I recall one take-away was your information about Fidelity and the chart packs. I have also noted you clearly state in the chart school, "bear in mind that Relative Rotation Graphs are not a trading system and there are no predefined trading rules or signals. "

What made me think of RRG was when I stumbled across a website called 'Sector Surfer' and the thought occurred to me that perhaps they incorporated RRG under the hood into the engine that drives their algorithms.