Finding the top exchange traded funds to trade requires a sound ETF trading strategy. Given the quite complications in the analysis of this market instruments, a consistent, reliable, and top performing ETF trading strategy would be the game changer. However, coming up with such strategy requires a lot of experience in trading these trades. One best way to succeed in this is to stand on the shoulders of giants, right?
This blog post will teaching you my top ETF trading strategy I also personally use to gain profits and win in the stock market. I hope this works for you, too.
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Breaking Down Our Top ETF Trading Strategy
Welcome to this video on finding the TOP ETF, that stands for exchange-traded funds. So ETFs trading is a little more challenging than most people first think and let’s dive into the detailed look of our ETF trading strategy and help you with your trading so that you can hopefully make more money.
What is an ETF
A lot of people think that exchange-traded funds are basically created equal. In other words, if you’re looking at the same sector today, we’re looking at the financials, so here are four different exchange-traded funds that are all tracking the financial sector and you would think, well, if they’re all tracking the financial sector, the point of an exchange-traded fund is that it’s basically an index of a bunch of different stocks in that same sector.
Therefore, all the exchange-traded funds from the various companies, whether it’s Spiders, Van Guard, Black Rock, First Dressed, Guggenheim, Invesco, Janet Hancock, Fidelity, they should all pretty much give the same results. Wrong, they do not! And that’s what this video is all about, to help you see, first of all, the difference and then how to determine which is the best one to trade for you at any given time.
The Premise
Let’s get into the basic premise of our ETF trading strategy and then I’ll show you how to evaluate this for yourself. We are going back 90 days. So this is about three months worth of price action and as you can see we’ve got a big disparity between these four.
So these four are, let me bring these up for you here real quick, actually going to go off the screen there, but the black one is XLF, that Spiders. And then numero dos, you’ve got the blue one and that’s the VFH, that’s the vanguard financial etf. The red one is IYF, and that is black rock. And then the green one is FXO, these are obviously the symbols that you would type in and that’s the first trust, and there’s many more we could have brought up Invesco, Janet, Ian Cock, Guggenheim, Fidelity, others; like I said that just for simplicity, if that will just look at for today.
So different companies that are providing these indexes that are tradable in very different results over the last 90 days. As you can see still we’ve got anywhere from about six point three percent all the way down to three point one to nine percent. So yeah, big difference, right? That matters about a 50 percent difference in your profits.
ETF Trading System
This is not little deal. This is a big deal. This you need to know. That’s why I’m pointing it out to you today in our ETF trading strategy. All right, so why is that? How can that happen when they’re all trading, they’re all tracking, I should say the same industry, the same sector. Well, there are several different reasons for that.
What You Need to Know
It is possible that certain funds are putting or tracking certain stocks and that of others. Another one would be waiting, so some funds will be evenly weighted with all the companies in that index. The same others will give a higher weighting to the higher caps, higher capitalized markets, and so that obviously will make a big difference as well. Another one is how often will they re-balance. So if they are going to say we’re going to evaluate this annually and re-balance the index as opposed to another company that says, well, we’re going to re-balance a recorder of that’s going to make a difference not only in performance but also in expenses and so forth.
And talking about expenses, if you’re trading these, you also need to look at some of the difference with regard to which are the most liquid, which have the most volume – this is especially important if your short term trading. Then you want something that’s very liquid and you also want to look at the bid ask spread, and the bid ask spread can vary quite a bit between some of the various exchange-traded funds out there. So look at that because those are expenses and then there’s an expense ratio as well that these companies chart, so the expense ratio can be quite different and I immediately looked at Vanguard in this ETF trading strategy because I expected them to be the cheapest and they were very low, point one percent net expense ratio, but it wasn’t the lowest. They were the second lowest.
Continuing Our Top ETF Trading Strategy
Then I’ll look to Power Shares. Power Shares are very popular and they had a point six percent net ratio, six times higher. Again, not a little deal, not a little deal that when I looked into it, I found out it was because that they turned over their portfolio more often again. Now how does that affect performance? That’s another thing. Maybe more turnover will actually improve the performance, but you’re paying for that more active hands-on management by their team. So it always out one thing, you can’t isolate one thing over against another. You need to put it all together. So, how do we put that all together? I put together a chart like this. Now, this is called the percentage change chart. So if you look over here on the right, you’ll see that there are no prices, just percentages.
So when you started, I started this particular one. Maybe they need to go over here. There’s a little yellow line there. I don’t know if he could see that very well. Anyway, that’s where it started. So they all started at the same spot. Zero Change, zero percent change because they’re all starting at no change on that day. Okay. So that is kind of our benchmark and we’re looking at which one performed the others and that will vary from time to time. We’ll just refer to the color lines here since we don’t involve the labels up right now. So you’ll see that right out of the bat, the black line performed the best and that’s great. That’s the Spider by the way. And then as it came down, but then the red one held up the best on a down market.
ETF Trading Strategy Recap
And that’s important because then you got to regain that money. And then the black one, you know, here we are now and you can see as we pointed out already, a 50 percent difference in the profits at the end of 90 days. But don’t forget about the draw downs too. That’s important. How much did you end up losing? Now, see the blue one here that lost more than five percent of the move down. Whereas the red one here only lost about three percent. So again, big percentage difference. Remember the difference between three percent or three percent down here at six percent is not three percent. It’s a 50 percent difference in your games. Very important to remember that. That’s how I do it. Use that percentage change chart. I look at this and I look for these markets to perform.
See which ones are under-performing, outperforming. And you can do this with anything. So I’m just doing the example with the exchange-traded funds, ETFsfor trading, define which are the top ETFs at any given time and as you can see it and we’ll change it will rotate so these things like expense ratios and a volume and all of that, they play a part in it, but the bottom line is what’s the performance? Because sometimes the more expensive one could actually help perform because they’re re-balancing and that might actually help the ultimate performance.
Our Favorite Rubber Band Trade Strategy
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