Swing Trading and Day Trading ETFs – Large Position Sizes Are Not Absolutely Necessary

Contrary to popular belief you don’t need to trade big share sizes to make a decent amount of money in the market.

In addition to trading for a living, I manage subscription based educational service called the Swing Trade Playbook. The idea behind the Playbook and this blog is to educate individuals about ETFs, trading, swing trading and day trading.

Every weekday night my Swing Trade Playbook outlines my trading plan for the next trading day. By doing this, I allow individuals to “peek over my shoulder” and see tomorrows trading plan today!

Today’s lesson, you don’t need to trade large size to earn a good living swing trading. The image below shows the positions my Swing Trade Playbook shared with subscribers about one week ago. As you can see the largest position is only 1,136 shares and if you were to enter the positions your unrealized P&L would be pretty close to $21,000 with an initial risk of approximately $7,000 (a 3 to 1 reward to risk ratio).

I wanted to show this since a potential subscriber emailed and asked how I can make any money trading small share sizes.

If you would like to learn more about my Swing Trade Playbook go to my website http://etfupdater.com/examples.

Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://etfupdater.com

Traders’ Market Update

The BIG story of the week was the FOMC meeting on Tuesday…and the market’s disappointment in ‘only’ 25 bps cuts on the Fed and discount rates. The Fed then surprised investors the next morning, in a coordinated plan with other global central banks, by injecting up to $40 billion in reserves into the financial markets in order to improve liquidity.

November PPI came in higher at 3.2% versus 1.5% (core at 0.4% versus 0.2%) on Thursday, and November CPI at 0.8% versus 0.6% (core at 0.3% versus 0.2%) on Friday. A better than expected Advanced Retail Sales (1.2% versus 0.6% expected in November) failed to impress investors, especially as reports that online sales for November and December are running below the 26% pace of a year earlier.

The major indices finished the week lower:
Dow Jones -2.10%
S&P500 -2.44%
Nasdaq -2.60%
Russell 2000 -4.02%

The US Dollar rallied 1.5% as investors pared down expectations for further rate cuts on the back of the biggest increase in consumer expectations in two years. Gold finished the week at $798, down $2.20.

Check out next week’s calendar at:
http://www.bloomberg.com/markets/ecalendar/index.html

Amaury
Contributing Author, ETF Updater
http://etfupdater.com/

ETF Swing Trades – Swing Trading Playbook

Contrary to a lot of individual’s beliefs, traders using a swing trading approach do not need to make trades everyday to be successful.

For example, the image below shows the ETF symbols that triggered a possible short sell signal (we emailed this list to subscribers to the day before a swing trade signal could be generated). If you are following the markets and our posts closely, today was the first time any of the ETFs had a net positive day since the signal was generated. This is good, since the ETF Swing Trade Playbook showed these as a short sell opportunity. That means if they go down we were correct in our directional bias.

Here are the ETFs that didn’t get stoped out since the “playbook” was issued on December 10, 2007.

If you want to know what ETFs and swing trades I’m planning for the next trading day visit us at http://etfupdater.com/. We have a trial offer for $19.99 until the end of the year, then it goes to $49.99 per month.

Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://etfupdater.com/

Commodity ETFs – Should They be in Your Portfolio

My friend Mike asked me a few weeks ago to contribute his blog with my thoughts on commodities, especially the precious metals since I truly believe investors can benefit from some exposure to commodities as an asset class in a well diversified portfolio.

There have been many studies and research projects about how some allocation to commodities will increase your return and lower your risk over the long term. How much depends on one’s risk and comfort level. 5-10% may be more than enough for most, while most aggressive investors will be comfortable with 40-50%. Such ETFs as GLD, SLV, CEF, GDX and others have made it relatively easy for an individual to get exposure. Sure, you can buy a resources mutual fund (but why pay the managers above average fees) or individual mining companies directly (but why worry about operational risk, management risk, currency risk, geopolitical risk, environmental risk) when you can get exposure to the asset class through ETFs.

When I first started trading metals in the mid 1990s, I had to buy gold coins at the local dealer, but now the with the ease of owning commodity ETFs along with the diversification they offer, any investor would be foolish not to own commodity-related ETFs.

If you are new to investing, start by accumulating on a pullback and build a position over time (but be wary of your commission costs) and rebalance at least yearly, if not quarterly, depending on your risk tolerance. This world is too global and offers too much opportunity not to have some exposure.

Amaury
Contributing Author, ETF Updater
http://etfupdater.com

Today’s ETF Action Action and Yesterday’s Playbook

Here is an excerpt from my swing trade playbook I sent out today. If you are interested in learning gaining access visit http://etfupdater.com/ :

This was a great day for subscribers that get a glimpse of my trading plan!

As you probably already learned the fed cut rates by .25 basis points. In my opinion, I thought they should have cut by .50 basis points and from the market’s response, I think the majority of market participants felt the same way.

As many of you know, for the past few days I’ve been posting how the market has been rising on low volume (remember low volume moves to the upside are suspect), that I’m keeping the portfolio light and how there was more risk to the downside than the upside.

As I filter through the ETFs, there are no setups for tomorrow’s playbook because of today big move, so I thought I would send a sample yesterdays playbook and how much each trade is in the money.

Tomorrow will be a day to sit on my hands, let the positions work and mitigate any risk.

The image to the right is what I sent to subscribers last night. It shows the direction I attempt to play, the entry price that the ETF has to trade at to trigger an entry signal, the average volatility of the ETF and how many shares I anticipate trading.

The image below shows the trades that were triggered and how many points they are “in the money” (maximum for the day). Basically, you can multiply the “In Money” column by how many shares you would have purchased. Click on the image to enlarge it.

Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://etfupdater.com/

Swing Trading and Day Trading, Unknown and Overlooked Differences

I’ve been asked numerous times, what do Swing Traders do and how are they different than Day traders. First, I should start off by saying there isn’t one best way to trade, but it seems almost everyone has an opinion about which way they feel is best.

In the past I would either day trade or swing traded exclusively, but now 90% of my trades are swing trades and the other 10% are day trades. My experience as taught me that combining the two styles offers me the opportunity to capitalize on different market opportunities other traders may pass up.

There basic differences between day trading and swing trading are:

o Time in Trade
o Risks
o Margin Advantages

I’ve been asked numerous times, what do Swing Traders do and how are they different than Day traders. First, I should start off by saying there isn’t one best way to trade, but it seems almost everyone has an opinion about which way they feel is best.

In the past I would either day trade or swing traded exclusively, but now 90% of my trades are swing trades and the other 10% are day trades. My experience as taught me that combining the two styles offers me the opportunity to capitalize on different market opportunities other traders may pass up.

There basic differences between day trading and swing trading are:

o Holding Periods
o Risks
o Margin Advantages

Time in Trade

Swing Traders generally hold positions for days or weeks and the holding period is generally determined from the stocks trend as opposed to the market’s hours for day trades.
Day traders generally start and end the day without any positions in the account. In doing so, the risk of holding overnight positions that open adversely to the trader is mitigated, which is true, but there are a few other risks many day traders don’t think about.

Many people think day trading is less risky since they do not hold positions overnight. In my opinion, this is far from reality since most of the day trading proponents never talk about “commission risk”.

Commission Risk
The risk that the cost of commissions can significantly impact the traders account. I’ve been in this business quite some time and have seen individuals gross $250,000 per year trading and pay $300,000 in commissions producing a net loss of $50,000 for the year. So, if you are going to day trade, keep in mind the risk least talked about, COMMISSION
RISK.

Opportunity Risk

The risk that a better opportunity may present itself after a decision has been made. Traders need to realize if they are going to swing trade, which generally requires more capital than day trading they are more susceptible to opportunity cost. I can find quite a few swing trades per day, but since capital is limited I need to reduce my opportunity risk by screening all possible swing trades for the best opportunities.

Margin (What is Margin)

Day trading does give some traders an advantage, buying power. If an account qualifies to be a day trading account the broker dealer may offer the trader 4 to 1 intraday leverage instead of the industry norm of 2 to 1. Keep in mind, depending on the day traders experience and profitability this can help traders produce greater returns or losses.

Feel free to send me an email if you have any questions.

Until next time take care and trade smart.

Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://etfupdater.com

Why the Media Has Short Squeezes Wrong.

Lately, the media has been talking up a storm about stocks with a high short interest proposing hedge funds are in trouble and need to cover. I find this a bit far from reality since most funds use capital and derivatives more efficiently than the average person thinks.

They, the media, or the so called professional being interviewed, seem to think any stock with a relatively high short interest and a trading day with a high positive net change is a short squeeze. Sometimes this is the case, but not always. Especially for stocks that are optionable.

You see, if a market participant is short an optionable stock and the stock starts to rally, to hedge themselves or, get delta neutral the participant can purchase an option instead of covering the stock in the open market. In doing so, the market participant does not add fuel to the current rally of their short position. Therefore, they can still hold the stock short and not lose any capital.

The theory of the media’s short covering rallies can be valid if the security in question is not optionable. In this situation, the hedge fund does not have derivatives to mitigate risk and to stop the trade from depreciating in value the fund will need to cover the stock in the open market – adding fuel to the rally in question.

Unfortunately, the stocks they were talking about were optionable so I would be suspect about calling that particular rally a short squeeze.

If I were to play the short interest / short squeeze trading game for either a daytrade or swing trade before I can make an investment decision I would need to the following data points increase the probability of a making a wise decision.

1st Gather the data for stocks with the highest short interest and days to cover ratios
2nd Filter out the stocks that are not optionable (this increases transparency)
3rd Look at the largest holders of the each stock and determine
Are solid mutual funds with deep pockets and good returns on the year?
Are the large holders of the stocks in question individuals or other hedge funds?

Take care and happy trading.

Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://ETFUpdater.com

ETFs the “New Stocks”

To be successful market participants must always strive to keep learning, even participants such as myself. Because of this, I found a new product to trade and they are fast becoming my preferred trading and investment vehicles.

ETFs are a derivative (don’t let that word scare you) of a basket of stocks. They can be designed to track nearly any group of stocks offering investors and traders quick and easy exposure to a specific market, sector or sub sector of the market. They are quickly becoming my trading vehicle of choice since they are less volatile than individual stocks, are not as prone to single company stock risk and liquidity is not an issue (even with ETFs that trade less than one hundred thousand shares per day).

I started trading ETFs, Exchange Traded Funds, around 1999. Over the next few years the variety of ETFs grew considerably. For example, the first ETFs to really catch the public’s eye were “main stream” ETFs were mostly index tracking products for the Nasdaq 100 (QQQQ), S&P500 (SPY) and the Dow Jones Industrial (DIA) indexes. Now the makers of the ETFs even make ETFs for special strategies.

Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://etfupdater.com/

GDX & GLD ETF Update – Gold Miners and Gold

I would like to introduce a friend and contributing author, Amaury.

Amaury is a personal friend and head trader at an investment management firm. He likes to focus on the commodity sectors within the markets, but more specifically gold and gold mining stocks.

Here is his latest insight:

The market weakness and uncertainty over the last month has created some interesting opportunities in the resources sector, especially in the Canadian junior sector. Those stocks have suffered from tax loss selling, project disappointments (i.e.: NG and the Galore Creek project), and risk-aversion selling from investors preferring large cap, less volatile names or cash. While there are over 3,000 juniors, I really like selling my GLD over $80 and using that cash to add or buy a few beaten down juniors. Of course, stick with the ‘best’ names- strong management team, good balance sheet, adequate cash, and advanced projects (gold-silver-copper projects in Mexico are my favorite). The fundamentals remain strong for gold and other metals, but the best trade I see right now is to look for companies that are unfairly trading at new lows and hold them over the next 12 months. Investors that can ride the volatility will be better rewarded than owing GLD outright.

Newmont (NEM), which makes up 10% of Gold Miners ETF (GDX), has agreed to sell its royalty assets and other non-core investments to Franco Nevada (FNV on Toronto) a few days ago. I like selling NEM over $50 and using that cash to buy smaller US and Canadian names that have advanced gold exploration projects. I feel this transaction opens the door for an interesting m&a period over the next 12 months.

Amaury
Contributing Author, ETF Updater
http://etfupdater.com/

ETF Investing & Swing Trading – New Swing Trading Tool

Good morning, the Dow Jones Index futures are down approximately 70 points, the DIA ETF is bid @ $132.55 (yesterday’s closing price was $133.30) and we have been short since Friday.

Most of the money made in the markets generally comes from sitting on your hands and letting your positions work, today we would like to mention a new tool swing traders can benefit from.

Our trader is constantly asked by friends, family and other individuals how he does what he does, what tools he uses, how he uses each tool and if they can watch him trade. Our website http://etfupdater.com/ created a service called the Swing Trade Playbook.

The service allows individuals to get a glimpse of our trading plan BEFORE for the next trading day. We aren’t familiar with any other services that let individuals see an actual trader’s plan the day before any trades happen.

The trader’s wing trading plan consists of :

– The ETFs He Anticipates Trading Tomorrow (ETF Buy Sell Ideas)
– Both Long and Short Ideas so traders can capitalize if the market goes up or down
– ETF Entry Points
– ETF Exit Points (inital stop loss prices)
– How Many Shares He Anticipates Trading To Balance Each Trades Risk
– Thoughts about the market
– Technical Analysis Ideas

The introductory rate for the service is $49.99 per month. As the subscriber base increases the price will increase to $99.99 per month. We anticipate on raising the price to new subscribers so we can maintain exceptional service for the original subscribers.

For more information visit us at http://etfupdater.com/ or click here.

Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://etfupdater.com/