My ETF Trading

part 2

Description of my best ETF trading system

When I am looking for possible opportunities for my ETF trading strategy I use top-down-type analysis.

First, I check and analyze the current situation in broad-based indexes and then I move into sector analysis to find possible ETF trading setups.

Broad indexes are represented in my stock analysis software by these types of symbols:

• market indexes (like Dow Jones Industrial - $INDU,S&P500 -$SPX, Nasdaq Composite - $Compq)
• market ETFs (DIA, SPY, ONEQ, QQQQ....)
• for trading short side I use also Inverse market ETF -Ultra short ETFs like DXD, SDS ..

One group is defined as technology-based stocks. These ETFs use NASDAQ Composite as a reference market for relative strength analysis. This group consists of these symbols: XBI, IBB, BDH, SWH, SMH, FDN

Second group is stocks representing sectors or industries related more to the “classical” economy. The S&P500 stock market index is used as a base market for relative strength analysis. This groups contains: XLB, XLE, XLF, PPH, RTH, TTH, WMH, IYR, IYT, XLP, XLI, XLU, XLY, XHB

I chart the underlying index or NAV value for these ETFs. It means that I chart $HDN instead of FDN. It provides better-looking (cleaner) charts.

• define main market index trading trend
• find etfs that show more relative strength than the strongest market index.
• find ETF stocks that are relatively weak to a weaker market index. This ETF is then picked for a possible short ETF trade.

The next part will describe using remaining ETF groups.

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