Trade ETFs
By now we know, what is an ETF(Exchange Traded Fund). Today different types of ETFs exist such as Index ETFs, Commodity ETFs, Currency ETFs, Bond ETFs, etc. You can learn more about types of ETFs here.
ETF vs Mutual Funds -
5 ETFs Flaws You Shouldn't Overlook
I am Confused!!!
No worries, always ask questions and try to understand the basics. Remember, you don't need to be financial analyst but just need to know where to put your money to work for you.
Below discussion is pertaining to Traditional/Roth IRA accounts or Regular/Long Term Trading accounts:
ETF vs Mutual Funds -
- Mutual Funds v ETFs
- Mutual Fund Or ETF: Which Is Right For You?
- ETFs vs. Mutual Funds: The Ultimate Guide
5 ETFs Flaws You Shouldn't Overlook
I am Confused!!!
No worries, always ask questions and try to understand the basics. Remember, you don't need to be financial analyst but just need to know where to put your money to work for you.
Below discussion is pertaining to Traditional/Roth IRA accounts or Regular/Long Term Trading accounts:
On our mind and how it fits our Strategy...
Does it mean, I should not trade Mutual Funds?
No. ETFs are fairly new financial instruments but they are similar to Mutual Funds with some advantages and disadvantages. We would recommend to use ETFs instead of Mutual Funds as ETFs can be traded as stocks during regular trading day thereby reducing our losses or protecting our gains.
Why not put my money to work by investing in individual Stocks?
Of-course, we can invest in Stocks but do we have enough knowledge and expertise to pick the right Stock? Do we have enough resources to analyze the companies earnings/income statements/growth plans/etc? If the answer is "NO" then we are better off sticking to ETFs or Mutual Funds. By nature Stocks are more volatile and risky.
What about transaction Fees?
Typically, most brokerage firms apply same transaction fees for trading ETFs as they would charge us to trade Stocks. In many cases, Mutual Funds transaction fee is higher along with minimum investment amount.
What about risk?
Law of Economics: Higher Risk = Higher Gains
Mutual Funds are governed by many rules and regulations hence less riskier than ETFs. Also ETFs are relatively new compared to Mutual Funds. ETFs are not actively managed and also known as passive funds, hence the expense ratio is lower compared to Mutual Funds.
Can we use our Strategy for ETFs?
YES. Instead of Mutual Funds, we will replace all symbols with ETFs. In our Strategy, we always pick the fastest moving symbol with highest rank from our list based on market timing. Also our model, has safety net built into it. For whatever reason if our chosen symbol is not performing after our entry and hits our threshold then we get out of it with minimal loss and move onto next symbol with highest rank in our list. Remember, new ETFs will be added as the ETF market grows, so you will need to compile the list every 3-6 months depending on your comfort level.
No. ETFs are fairly new financial instruments but they are similar to Mutual Funds with some advantages and disadvantages. We would recommend to use ETFs instead of Mutual Funds as ETFs can be traded as stocks during regular trading day thereby reducing our losses or protecting our gains.
Why not put my money to work by investing in individual Stocks?
Of-course, we can invest in Stocks but do we have enough knowledge and expertise to pick the right Stock? Do we have enough resources to analyze the companies earnings/income statements/growth plans/etc? If the answer is "NO" then we are better off sticking to ETFs or Mutual Funds. By nature Stocks are more volatile and risky.
What about transaction Fees?
Typically, most brokerage firms apply same transaction fees for trading ETFs as they would charge us to trade Stocks. In many cases, Mutual Funds transaction fee is higher along with minimum investment amount.
What about risk?
Law of Economics: Higher Risk = Higher Gains
Mutual Funds are governed by many rules and regulations hence less riskier than ETFs. Also ETFs are relatively new compared to Mutual Funds. ETFs are not actively managed and also known as passive funds, hence the expense ratio is lower compared to Mutual Funds.
Can we use our Strategy for ETFs?
YES. Instead of Mutual Funds, we will replace all symbols with ETFs. In our Strategy, we always pick the fastest moving symbol with highest rank from our list based on market timing. Also our model, has safety net built into it. For whatever reason if our chosen symbol is not performing after our entry and hits our threshold then we get out of it with minimal loss and move onto next symbol with highest rank in our list. Remember, new ETFs will be added as the ETF market grows, so you will need to compile the list every 3-6 months depending on your comfort level.
How to trade ETFs using our Strategy?
Today, we have around 1200 various types of ETFs from different categories.
Where to get list of ETFs?
Many sources are available today over the internet, the best source is your brokerage firm. Few free resources are provided below:
How to choose right list of ETFs for right kind of market!!!
Where to get list of ETFs?
Many sources are available today over the internet, the best source is your brokerage firm. Few free resources are provided below:
How to choose right list of ETFs for right kind of market!!!
Bull Market - Strong uptrending Market
File below has list of ETFs with 10 day average volume > 10,000. The list contains total of 500+ ETFs.
ETFs to be used in Bull Market.txt
Bear Market - Market Correction or Crash
File below has list of ETFs to be used during Market Correction. The list contains total of 200+ ETFs. List contains Inverse, Bond ETFs.
ETFs Bond to be used in Market Correction.txt
ETFs Inverse to be used in Market Correction.txt
Shall we use Inverse ETF or Bond ETF ???
Choose the list which you are more comfortable with along with appropriate market timing to get better results.
- We choose all ETFs excluding all BOND ETFs, ETNs, Target Date ETFs
- Liquidity Condition - ONLY ETFs with 10 day average volume > 10,000. We can adjust the volume condition based on our comfort level. This will eliminate low liquidity ETFs. If a chosen ETF has low volume then it is very difficult to sell shares as we cannot find enough buyers in the market.
File below has list of ETFs with 10 day average volume > 10,000. The list contains total of 500+ ETFs.
ETFs to be used in Bull Market.txt
Bear Market - Market Correction or Crash
- We choose ONLY all Inverse ETFs excluding Inverse BOND ETFs, Inverse ETNs
- Liquidity Condition - 10 day average volume > 10,000. We can adjust the volume condition based on our comfort level. This will eliminate low liquidity ETFs. If a chosen ETF has low volume then it is very difficult to sell shares as we cannot find enough buyers in the market.
File below has list of ETFs to be used during Market Correction. The list contains total of 200+ ETFs. List contains Inverse, Bond ETFs.
ETFs Bond to be used in Market Correction.txt
ETFs Inverse to be used in Market Correction.txt
Shall we use Inverse ETF or Bond ETF ???
- Inverse ETFs are designed to produce the inverse returns on a daily basis
- Inverse ETFs are typically not recommended to hold for longer period
- Inverse ETFs can provide higher gains applied with appropriate market timing, however are very volatile and hence high risk
- Bond ETFs has a bigger pool from variety of Bond types.
- Bond ETFs typically may have higher volume than Inverse ETFs
Choose the list which you are more comfortable with along with appropriate market timing to get better results.
So what do we do with this ETF list?
You may want to check out "How to use Funds Ranking Sheet" to obtain ETF ranking. You can simply "copy & paste" the content of text file above into Funds Ranking Sheet and apply configuration changes.
How to apply our Technique using base strategy:
Benefits of this technique -
Disadvantage/Risks -
You may want to check out "How to use Funds Ranking Sheet" to obtain ETF ranking. You can simply "copy & paste" the content of text file above into Funds Ranking Sheet and apply configuration changes.
How to apply our Technique using base strategy:
- Identify the market direction based on our market timing tool or follow our Blog.
- If we get market "entry signal" then we trade best performing ETF from "ETF to be used in BULL Market".
- If we get market "sell signal" then we trade best performing ETF from "ETFs to be used in BEAR Market".
- Best returns are obtained when you enter a trade after you get entry or exit signal and not midway, if you are midway then best strategy might be to wait till a signal is generated
Benefits of this technique -
- We remain invested most of the time, in other words our money is always working for us irrespective of market direction
- Bear markets, market corrections or market crashes provides us a way to be invested intelligently and make good gains
- Our losses are minimal but overall cumulative gains over longer periods are substantial
Disadvantage/Risks -
- Transaction fees for trading ETFs can add up but considering our strategy and if entered after appropriate signal, the gains are far more.
- Remember, these are ETFs (similar to but better than Mutual Funds) and hence slow moving financial instruments there by providing lower returns as compared to Stocks.