Profitable ETF Trading Strategies: 8 attributes of quality research

There are plenty of snake oil salesmen in the financial advisory business, but there are by far many more conscientious professionals prepared to act as good fiduciaries for you. At the same time there are many people willing to take on full responsibility for the design and implementation of some or all of their own investment program. 

This article describes the characteristics of quality financial research, to help you identify the difference between quality and snake oil, using the standards of scholarly research to inform our decision-making. 

What distinguishes quality research in any field from pure opinion has everything to do with rigor, the design of experiments, and a respect for the difficulties in pursuit of the truth. 

If you can see the following qualities in the research of someone who proposes to provide you advice or financial services then you can have more confidence in achieving your financial goals. 

Quality research should be: systematic, controlled, empirical, amoral, public and a critical examination of the world, informed by theory, and framed in a hypothesis. 

Here are some brief insights to get you started down the path of critical thinking: 

1. Systematic: the research program should be unhurried, thorough, comprehensive and organized. There should be evidence of an attention to detail and a commitment to completing the testing no matter the time or complications in performing the work. 

2. Controlled: care should be given to establish the difference between correlation and causation; in the identification of cause and effect and in identifying dependent and independent variables. 

3. Empirical: we want to see evidence from the real world, that is replicable, verifiable’ in the case of back-testing we want to ensure that only the information available at the time is used in hypothetical decision-making in order to be truly realistic. 

4. Amoral: we want facts and conclusions to succeed or fall on their own merits, and in pursuit of truth; not simply to support a biased opinion. 

5. Public: we want to see all the details of the research and they should be independently verifiable; we don’t want to see black boxes or special testing circumstances unavailable for inspection. 

6. Critical examination: real scientists are concerned about overstating their claims and are in search of evidence to disprove their hypothesis, rather than looking for reasons to agree with their suppositions. A scientist is concerned about finding the hidden flaws in their own reasoning and hypothesis, because of the implications of their conclusions. 

7. Informed by Theory: we want the world to conform to reasonable processes; this bias helps protect us against statistical anomalies and data mining 

8. Framed in a hypothesis: we want to see how the experiment can allow the hypothesis to be disproven in a clear-cut, meaningful way. We want the ideas to be testable and falsifiable in unambiguous terms.

These ideas are strongly related to a conceptual approach to trading which establishes price levels at which we can state clearly that our idea is either working or failing, which gives us explicit criteria for entering and exiting.

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