The type of ETF trading system that a person chooses is going to be a personal choice that will involve many variables. Depending on whether a person wants to invest in a software program, subscribe to a service, do the research on their own, or use a system that they come up with. There basically is no standard system that everyone uses when they trade.
The effectiveness of any trading system that one uses will depend a lot on the type of trading they are doing and the baskets they are trading in. A system that is geared for long positions will not do as well in a short position sector. So, a trader who is diversified in Leveraged or other types of risky ETFs will want to be able to adapt their system to meet the needs of the sector they are in.
There is no magic trading system that will make a person a lot of money very quickly. It would take the fun out of ETF trading for one thing. But also, this is a market that is affected by millions of little details that just can’t all be accounted for. Then, there is the fact that some people work very well with a system that no one else can figure out.
The easiest system to start with that provides minimal risk and will get a traders feet wet is the EMA system. EMA stands for Exponential Moving Average. It involves following trends, and has a pretty decent risk rating. The ETFs most traded using this system are TLT, XLF, SMH, RTH, and a few others.
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.
A good rule of thumb is to set a risk allotment. Set the percentage of the total capital that one is willing to risk on any one position, then stick with it. When the account reaches the minimum don’t add more fuel, just move on. The other rule is to set the number of losing trades in a row that will be accepted, then cut back by a set percentage after that loss has been reached.
The most effective ETF trading system will be the one that works for the individual using it. When looking at different systems one must be as analytical as when they are planning on trading in a sector. Find out the consistent success of the system and how it worked in the sector that one is considering using it in. By discussing systems and strategies with a person who has knowledge of ETFs, trading strategies and systems, a person will be able to achieve successful trading within a short time.
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