This strategy was featured in the May 2011 issue of Active Trader magazine.

This system combines regular and inverse («short») exchange-traded funds (ETFs) to create a long-short strategy that avoids taking short positions.

System rules:

• Go long the primary ETF on the open of the first day of the test period.
• Exit long at the close only with a trailing stop equal to highest price in the trade minus 5 percent. (The stop is triggered only if the closing price is below this level; an intraday move below the stop level will not trigger an exit.)
• Go long the inverse (short) ETF next bar at market when the stop closes a position in the primary ETF. Go long the primary ETF next bar at market when the stop closes a position in the inverse ETF.

This system idea was submitted by Michael Mosley.