Getting A Handle On ETF Trading Strategies

Written by Patrick Deaton

Friday, 04 December 2009 09:30

by PatrickDeaton

Nowadays, many traders are looking to exchange traded funds and are trying to take advantage of these funds because they do, in fact, make for great investment vehicles that can actually deliver a very nice income in many cases. Knowing what makes a good ETF trading strategies, then, will be necessary in order to take advantage. It's also a good idea to know a few things about ETFs first of all.

In a way, an ETF is similar to a mutual fund in the way it is constituted and run by a fund manager. Usually, though, almost every exchange traded fund limits its membership to what are known as institutional investors. This means large investors capable of buying and selling big blocks of stocks known as creation units. There are ways, though, for small investors to get in on the action through a trading system.

Think of an ETF, also, as a corporate stock in how it is sold or traded and bought. This will give you a good idea of how ETFs can be tracked in a market. Additionally, it is even easier to do so because all ETFs track one of the major market indexes. For purposes of discussion, assume that a particular ETF will track the Standard & Poor's 500. This makes it very easy to follow trends.

There are a huge variety of trading strategies out there when it comes to tracking market movements and then setting up a timed strategy for getting in and out of those markets. Usually, though, all strategies tend to fall into two major categories known as technical and fundamental. Strategists who use technical methods think they can discern shapes and patterns in market movements.

Being able to discern these patterns or shapes in a stock chart (basically up-and-down movements of the stock over a defined period of time) can give a signal of the possibility of profitable trading opportunities which might exist. Many traders claim that they can make consistent profits from trading using technical analysis in this manner.

One of the most common of technical strategies that exists today is to utilize what professional and amateur traders call the "moving average cross." With it, traders look at short-term movements in the market -- or a stock or fund -- and then overlay that short-term movement on a long-term trendline. Usually, most short-term movements are from-- to 25 days in duration to create a moving average line.

Once this line is established, it can be superimposed over the short term evolution analysis in order to determine which way the stock price in the ETF will go through the moving average line after it is crossed. The bottom, or long-term trend analysis usually consists of looking at a 50-day moving average. This longer timeline tends to smooth or dampen out those short-term trends.

Employing this strategy, traders can look at trends in the long-term and develop the moving support line. Those who are skilled at this strategy can pick out the right time to buy a stock at the bottom of its upward climb or at the point when the stock has touched or lightly penetrated the 50 day average. One can also use it to sell the stock short in an effective manner. Money is usually made on the margins.

About the Author:

Learn how it's very possible to make 6% per month in your investment accounts using etf trading! "Big A" is a recognized expert in the world of etf trading system and reveals etf secrets that have been kept under wraps by hedge traders for years. Get his free report and webinar today!