Successful Financial Markets Day Trading ETFs

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May 22, 2009 9:14am ETF BASIC NEWS

daytradingJudging from the contents of an increasing number of emails more and more investors are choosing to “actively” trade the market rather than “buy and hold.” In the main, this is due to the fact that in a bear market the latter strategy creates losses that are difficult to accept long term. However another reason is that with limited business opportunity available investors are seeking “income” rather than capital gain from their investments.

Accordingly I set out below some parameters to help these new “traders” avoid the worse pitfalls and hopefully guide them towards the mindset required for long term success.


1. Start. Markets are rational. The best theory to gain this insight is Dow Theory. Learn everything you can about Hamilton’s and Dow’s perceptions and make it part of your investment “macro-view”.

2. Due to the growing complexity in financial reporting and the opportunity for abuse therein, with its concomitant risk, it may be advisable to trade through exchange traded funds (ETF’) or Contracts for Difference (CFD’s). These funds trade like stocks but offer exposure to equity sectors, commodities, currencies and interest rates. Thus you have better opportunity for diversification with less risk. If you do not understand CFD’s see note 1 below.

3. When you enter a position know beforehand your exit point. Always place a sell stop thus limiting your potential loss.

4. As your profits rise adjust your sell stop upwards thus locking in your profits.

5. A trading platform offering discount commissions is absolutely vital. I like IG Markets or Ameritrade.

6. Technical analysis data is vital to judge your entry and exit points. Get a good system that offers “real time” streaming providing one minute, five minute, ten minute and one hour ticker readings in addition to the regular daily timelines. I prefer the five minute screen. I use Worden Bros.

7. Using too many technical indicators creates “paralysis by analysis”. Get to know the indicators that work for you and stick to them. Consistency will bring greater reward. I like MACD (moving average convergence divergence, 10 and 20 DMA’s (daily moving averages) and purchase volume. For price I use the candlestick format rather than the simple line as it gives more information on the market psychology of actual price movement. See note 2 below on MACD.

8. You must adopt a trading strategy. If you do not have one find one. If you are new to trading use the many simulation packages available online to test and retest your knowledge and approach. Do not start to spend a major part of your capital until you have proven to yourself that you can consistently make good investment decisions in real time. It is better to be losing time rather than time and money. For me the best strategy to successfully day trade is our Wealth-builder MOMENTUM STRATEGY. This strategy highlights top stocks which are going long and going short. Our BUY indicator is a BULLISH ENGULFING candlestick moving up through a DMA on high volume. ideally with a MACD changing from negative to positive. Our SELL indicator is a BEARISH ENGULFING candlestick moving down through a DMA, ideally with MACD moving from positive to negative.

9. The holy grail of trading is patience. If you do not have a trade that has a good probability to work profitably for you the best place to be is in cash. This is hard to learn but is absolutely essential.

Full Story: http://www.marketoracle.co.uk/Article10826.html


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