A Trade A Day

It amazes me, the universe of ETFs that are available for trading. ETFs or Exchange Traded Funds are index funds that attempt to mimic the performance of a group of stocks or other financial instruments. They trade like stock, so you can buy and sell them like you would any other investment. I think the cool thing about ETFs is the vast array of indexes, sectors, and industries that you can trade.

A small example:

Claymore/LGA Green ETF(GRN): Tracks the performance of U.S. listed large-cap companies that have better than average environmental performance.

Market Vectors - Steel ETF(SLX): Tracks the performance of the AMEX Steel Index.

PowerShares DB US Dollar Index Bearish Fund(UDN): Tracks the performance of the Deutsche Bank US Dollar Index (USDX) Futures Index Excess Return.

UltraShort FTSE/Xinhua China 25 ProShares(FXP): Tracks the inverse performance X2 of the FTSE/Xinhua China 25 Index.

This is small sample of the ETFs you can trade.

What sucks about ETFs:

Volume or lack there of. Lack of volume causes all kinds of problems. The first thing that comes to mind is your ability to get good fills. Lack of volume can also wreak havoc on price patterns. Just look at a daily chart of GRN. It’s not pretty.

Of course the most liquid ETFs provide ample opportunity. Many traders make their living trading SPY, DIA, and QQQQ. So how do I find the next hot ETF. I found two resources that are worth a look.

1. Here is an ETF Reference Guide. It is all inclusive download from the AMEX.

2. If you’re looking for a quick and dirty csv file, I found one at masterdata.com

One word of caution:

The thought of participating in Oil and Gold’s run without having to buy futures, or making money off China’s boom without having to buy stocks overseas is tempting. However it is worthwhile to remember that it’s best to focus on price pattern, volume, and support and resistance. It doesn’t matter if you’re trading IBM or HOLDRS Internet Infrastructure(IIH). You want to trade stocks with a discernible, repeatable pattern and enough volume to buy and sell without getting ripped off.

If you like this post, then consider subscribing to my full feed RSS feed. You can also Subscribe to A Trade A Day by Email and have new posts sent directly to your inbox.

1 Comment »