ETF Trend Trading Can Be An Effective Investment Activity
Written by Patrick Deaton on December 25th, 2009 in Investment.
These days, when people are looking to the markets with a renewed sense of what could be possible, it’s good to know that ETF trend trading can be an effective investment activity that promises good rates of return. These exchange traded funds are similar to mutual funds and how they act when traded in a stock exchange. Think of them as being similar to stocks themselves.
What goes into ETF trend trading is basically the tracking and analysis of trends in a given market or markets. People skilled in this kind of trending analysis can time market movements so that they invest in and then get out of markets quickly enough to make a fair profit in many cases. Many people who believe in trend trading often say that they spent less than 20 minutes a night doing so.
There are several good trading systems out on the Internet that can assist a user who is interested in trend trading, so take some time to find them and then go through their tutorials before investing any starting capital or other funds. If you’re smart, you can time your trades such that you are making a 6 to 9% return on investment on a fairly steady basis over a 30 day period.
There are normally three solid ways or strategies to go about using exchange traded funds in a trend trading manner. The first is known as a fundamental strategy. A small investor will normally work through a trading system to follow trends that are based on a long timeline of observations of activities on the broader markets or a predefined market.
With a fundamental strategy, a user or trader in an ETF can keep solid control over not only costs (ETF’s tend to be low in cost) but also in taxes that will result as a result of profits and losses within the trading activity over a set period of time. Portfolios involved in a fundamental strategy tend to be very traded at very infrequent intervals though they do provide broad exposure to markets.
Another good strategy when it comes to trend trading is to follow one based on sector tracking. When using a sector strategy, it’s necessary to follow trends in a market very actively and with an eye towards being able to react extremely quickly to those trends or changes. Sector strategy investors have portfolios that are traded and monitored quite frequently.
Sector strategists are always on the lookout for the best ways to get into and out of the fund very quickly. They usually employ what experts call a “momentum-based” strategy for doing so. This strategy tells them when the best times for jumping into or jumping out of the market will be. However, beginners in ETF trading are advised to use more of a blended strategy.
In a blended trend trading strategy, someone using a trading system to work through an ETF monitors a 200 day moving average in a market. In this way, the investor should be able to tell which way the market will actually be moving and also the areas in which they’re moving. They establish set signals to monitor long trends and they also make good use of a stop loss to keep a handle on overall losses that may occur.
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