Beginners Introduction To ETF Trading System PDF Print E-mail
Written by Patrick Deaton   
Tuesday, 22 December 2009 09:40
There are many websites that offer different automated trading systems. One can find software programs that offer alerts, automatic buys, and several other features. However, whether a person is going to learn an ETF trading system or depend on a website for it, there is some basic information that one needs to know. First, there is no one-size-fits-all system.
by PatrickDeaton


There are many websites that offer different automated trading systems. One can find software programs that offer alerts, automatic buys, and several other features. However, whether a person is going to learn an ETF trading system or depend on a website for it, there is some basic information that one needs to know. First, there is no one-size-fits-all system.

The system that will work for a new trader will depend on the type of trading that is going to be done, the sectors that will be traded, and the style of trading that a person enjoys. A different system will work more effectively with high risk Leveraged ETFs than with long term ETFs. So, if a trader is going to diversity among several sectors they may need to have different systems in place that will work with each sector.

ETF trading is affected by thousands and millions of tiny details that impact the market. There is no system that can effectively calculate all of the details and their impact on a particular day in the market. Therefore, a person will want to take the time to find a system that most closely meets their needs, then give it a tweak to make it their own. The systems that work for some people will not work for others. Besides the market the system must also meet the personality of the trader. A low risk system, even if it is effective, will not work for a person with a high risk personality.

For a beginner, a minimal risk system that has been around a long time is the Exponential Moving Average system. The EMA involves following trends. It is used most commonly on the TLT, XLF, RTH, SMH, and a few other sectors. It has a decent risk rating with a high of about medium risk.

The crux of the system is that when the fast EMA crosses above the slow EMA a trader goes long. When the slow EMA crosses the fast EMA, the trader goes short. The rule is that a person has to leave or reverse their position the date after the fast EMA and slow EMA cross. And, when the rules have been set up on the days for the EMAs to cross, usually fifteen, the trader needs to stick to them.

Even this simple system will require that a person do the necessary research on each sector and follow their trends to make effective trades. It is important to set buy and sell limits so that one does get caught up in trading and lose more than they intended.

Setting a risk allotment that is a percentage of the total capital you are willing to risk on a position will also make the trading in this system more effective. When an account reaches the minimum, move on. Setting the number of losing trades in a row acceptable, then the percent that the account will be reduced will also help to assure an effective trade.

When choosing the ETF trading system that will be most effective it is important to gain as much knowledge as possible about the system. By using systems which have a history of consistent effectiveness a person will have a better opportunity to use and learn from the system as they get into more complex trading. Seeking the assistance of a professional who has expertise in ETF structure, trading, strategies, and methods will also be extremely helpful in developing a trading system that will be successful.

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

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