Beginners Guide: ETF Trading Strategies | Investments

Beginners Guide: ETF Trading Strategies

Written by Patrick Deaton

Tuesday, 08 December 2009 20:19

by PatrickDeaton

Testing ETF trading strategies before committing to them with trades can help a person to become more successful in trading. When a person is considering trading strategies, methods, and systems, it will be important to also think about how to make the strategy work most effectively for you.

Many people entering trading start out using Active Short Term trading strategies. In many cases these individuals don't realize they are using a strategy, they are just trading on a daily basis without doing the research necessary to make significant gains in their trades. Without setting some clear rules for trades, a person can see reversals that they are not expecting on a daily basis.

A stop-loss order can keep you from losing more than you intend when trading. ETF trading can move very quickly and you will want to set a stop-loss order so that you don't get caught in a reversal when you aren't prepared. Many people set a 10% stop-loss order which takes the emotional factor out of moving on changes.

There will be a perfect strategy and system that works effectively with a certain type of sector. However, this same system and strategy will not be as effective with another sector. You will want to learn which strategies, systems, and methods work best with the sectors you are trading in. Learning about the different aspects of trading strategies and methods will be a great help as you start to trade in a less concentrated area.

When diversifying ETFs it is important to spread the risk of the sectors at the level of risk you are willing to endure. Diversifying into a portfolio that has a majority of high risk ETFs will increase the risk for loss. When first starting out, it is always wise to have more weight on the low risk side of your trading portfolio. This will give you the cushion needed to supplement the high risk losses that normally occur during the first two years of trading.

Setting buy and sell points will take the emotions out of investing. This strategy is about following trends and the history of a sector. Using technical indicators, a person spots trends and trades on market conditions.

Many of the larger companies that handle retirement and long term investment portfolios incorporate a Buy and Hold strategy. They invest in diverse ETFs that deal with financial products. The trends for these sectors often are long-term so significant reverses do not occur for ten to thirty years.

The Active Buy and Hold strategy incorporates the same type of diverse ETF plan. The goal is still to have a steady growth among relatively low risk sectors. However, the investor or trader is more involved in their portfolio. This individual may evaluate their portfolio on a semi-regular basis and reallocate trades among the ETF sectors that are within their portfolio.

An investor who is going to be more active with their mixed portfolio, but not to the extent that they are in a higher risk for trades may use the Active Long Term trading strategy. This strategy is also diversified over several low-risk ETFs that are offering steady growth and positive overall profit to their portfolio.

Pairing the correct system and strategy with sectors is the key to successful trading. A person who learns the intricacies of ETF trading will find that history often repeats itself with sectors and by studying the trends of sectors over a period of time it is possible to proactively act on advantages and opportunities as they present themselves.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

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