ETF Trading Strategies

Trading Strategies for ETFs

Each major stock index has exchange traded funds based on them including the American Stock Exchange (AMEX), the Dow Jones Industrial Average, the Standard and Poor’s 500 Index, and the NASDAQ composite. ETF funds are securities that track on an index, a commodity, or a basket of assets like an index fund however they trade like stock on the major stock exchanges. They are growing increasingly popular as more and more individuals invest in ETFs .

In today’s article we will discuss some trading strategies used when investing in exchange traded funds.

Buy and Hold Strategy – This strategy is currently the most common strategy used when investing in the ETF market . More specifically it is the most popular strategy used for profiting from sectors or broad indexes and for limiting portfolio risk. Traders can either choose steady portfolio growth or fixed incomes and they can profit from the growth of all financial products. The diversity of exchange traded funds is the heart of the buy and hold trading strategy.

Active Short-Term Trading Strategy – This is one of the trading strategies that works similar to the short-term trading of equities. Since exchange traded funds have fluctuating prices throughout the day, similar to that of stocks, day traders and swing traders can buy and sell them through the day, or whenever they would like. Trader can also practice short selling exchange traded funds as well! Of course just like with trading stock there are commission fees associated with doing this.

Active Long-Term Trading Strategy – If a trader believes that a currency/market/industry or sector ETF is going to outperform others than he or she can buy more shares of the ETF which tracks it and can then sell the shares of the under performing exchange traded funds. This strategy behaves similar to the buy and hold trading strategy however it includes periodic and perhaps frequent portfolio reshuffling.

ETF’s Wraps – The last of the trading strategies that we will discuss today include that of ETF’s wraps. These are more beneficial than a mutual fund wrap and they are growing in popularity. They are a good investment choice for those investors who prefer a fee-based investment account.

Read about Japanese Candlesticks , a trading strategy used by some of the world’s most successful traders along with other forms of technical analysis . It is the fastest way for new investors to quickly and accurately read stock charts. Once you are comfortable with the major candlestick signals, expand your expertise by learning the secondary Candlestick Patterns . Combine these with your favorite technical analysis indicators, such as the moving average , and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or exchange traded funds .