Wednesday, October 30, 2019

Should I Day-Trade ETFs? Probably Not.

The great majority of ETFs are not designed for day-trading. I like to use them for longer-term trades (months to years), especially ones that pay monthly distributions.
There are some leveraged ETFs that I’ve used for shorter term trades (hours to days). I still don’t view these as specific day trades, which I define as trades that are never held from session to session; for example, the NYSE closes at 3 pm CDT, so all positions must be closed before that time.
For example, you could use SPXL and SPXS to trade the S&P 500. These ETFs are leveraged 3X the overall market. For example, if the S&P 500 increases by 1 point, SPXL should increase by 3 points. Generally, these two ETFs track the market very well.
There are other leveraged ETFs for almost any asset class; for example, OILU for a bullish 3X Crude Oil trade.
If I’m going to actually day-trade an asset, I’ll trade the futures market, which is highly leveraged and highly volatile. I would not suggest you trade in this market unless you’ve gotten some professional training first. It’s very easy to lose a lot of money in a very short time if you don’t know what you’re doing.
My best gains have come from looking at longer-term trading, such as days to weeks or months. For example, I recently traded CAT, buying at 115 and selling at 128 for an 11.3 percent gain. I was in the trade for three weeks.
I also did a recent trade in energy, using the following ETFs: ACES, FENY, TAN, XES, and XOP. I invested $5,000 in each one and used trailing stops to manage my risk. I was eventually stopped out between 2 and 4 weeks in each position for a total profit of $1,345. While that may seem small at only 5.3%, if you do that once a month, you’ve made a 60 percent gain.
I use two methods to gauge where and when I’ll enter a trade: 13–34 Moving Average crossovers and Fibonacci Retracements and Extensions. (Google these terms for in-depth coverage, or watch the following two videos for an introduction:




Be careful. Learn all you can. Practice with “fake” money before you invest. Have a plan and stick to it. Learn risk management. Use stops. Always. Have fun.
Happy investing.

No comments:

Post a Comment

Thanks for the comment. Will get back to you as soon as convenient, if necessary.

Top Five Consumer Cyber Security FAQs

By Equifax Business, technology, environmental and economic changes are a part of life, and they are coming faster all the time. All of thes...