Stay in Touch With Your ETF Position By Trading its Top Holding

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July 20, 2009 10:25am ETF BASIC NEWS

toniturnerToni Turner President of TrendStar Group, Inc, and author of “A Beginner’s Guide to Day Trading Online 2nd Edition” wrote an interesting article detailing how she keeps in touch with her ETF positions through investment in the ETF’s top holding. She chooses to hold a stock position

, even a small one, in the ETF fund. Her theory is that by holding the top stock, she tends to watch it more (skin in the game) and finds that this top holder is a major influence of the ETF’s trend.

Toni states, “say I have a position (trend) trade in a sector ETF in my IRA. (I maintain a trailing stop, and I keep an eye on the sector and the ETF’s top holdings. But I don’t sit and watch the fund trade on an intraday chart.)

When that ETF encounters a support or resistance area, I evaluate charts of its main components. This works best when the top 2-3 components comprise a sizeable percentage of the ETFs total structure. (When I trade sector ETFs as my main trade, I often use the Select Sector SPDRS, as their top holdings are generally more heavily weighted, percentage-wise, than the iShares funds.)

Next, I target the holding that’s setting up as a high-probability intraday or swing trade. If conditions are appropriate, I enter the trade. Now, I feel more “in tune” with the ETFs internal price strength. In the two charts that follow, you can see an example of an ETF / top component trade.”

For Toni’s full story click: HERE


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