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

Swing Trading the Best and Worst ETFs

This weekend an individual wanted to learn how we trade ETFs.

I’ll start by saying there is no one Holy Grail in trading and to be successful traders only need to understand a couple of strategies.

The core strategy behind my method is to purchase ETFs during pullbacks and short ETFs during rallies. I feel my method offers less risk than traders buying breakouts and selling break downs since the majority of the trades are entered during either “oversold” or “overbought” conditions.

As many of my subscribers noticed I don’t have many breakout plays in my ETF Swing Trade Playbook and here is why:

Contrary to the “inexperienced” traders’ belief, the majority of breakouts are unsuccessful! Sure, it is easy to look at a chart and identify the best breakout points that happened in the past, but what most inexperienced traders fail to notice is how many breakouts fail – maybe this is why most inexperienced traders are unsuccessful.

Breakouts, the successful ones, don’t happen as often as people think. Realistically, there are only a few times each year an individual sector actually has the opportunity for a good breakout to exist.

Breakouts have greater risk. If a trader believes in trends, support and resistance levels the actual price in which the trend is broken, the stop loss price, is much farther away from the entry price on breakout trades. Therefore, to give the trade the opportunity to work the “wiggle” or stop loss level has to be larger than the “wiggle” for pullback strategies.

The majority of newsletters generally focus on breakouts, since my Swing Trade Playbook focuses on pullbacks and rallies, not only can subscribers diversify their trade discovery tools, but subscribers get see the trades I anticipate doing the day before I do them along with original and uncommon trading methodologies.

Sure, I do trade some breakouts, but they are not my core strategy since, technical analysis research has shown breakout type strategies fail more often than succeed. Generally, wait for the breakout to happen, confirm itself and then I buy the pullback.

I have an educational book called Swing Trade Fundamentals it details the how and why concerning finding trades, determine the correct amount to shares to purchase, determining entry points, exit points and much more.

If you would like to learn more about swing trading, day trading and investing feel free to sign up for our free weekly swing trading educational newsletter at http://etfupdater.com or click here.

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

Best & Worst ETFs

Best Performing ETFs for Friday December 14, 2007

Energy, specifically clean energy and Commodities (Gold) were the only two sector ETFs I track that were positive on the day.

PBW PwrShr WilderHill Clean Energy 1.55%
GLD StreetTRACKS Gold Trust 0.15%

Worst Performing ETFs for Friday December 14, 2007

It seems the heavy selling was in the Real estate and Banking ETFs.

KBE SPDR Series KBW Bank -4.45%
ICF iShares Cohen & Steers Rlty Ma -3.62%
RWX SPDR DJ Wilshire Intl Real Est -3.43%
RWR SPDR DJ Wilshire REIT -2.93%
VNQ Vanguard REIT ETF -2.89%

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 – Professional Technical Analysis and Money Management Organizations

I believe, to stay on top of their game, money managers must constantly evaluate new market concepts, revisit old trading journals and network with their peers.

To accomplish this task, I belong to a few professional organizations. One of which is the Market Technicians Association (http://mta.org/) and I joined for a few reasons:

1. To learn more about technical analysis to improve my personal trading
2. To meet other professional Market Technicians
3. To help promote the use of Technical Analysis

To Learn more about the MTA click here and to learn more about what a market technician does click here.

Another organization I belong to is the National Association of Active Investment Managers (NAAIM) to visit the organizations website click here.

Each organization has a different focus, but together, they combine the knowledge, insight and camaraderie I feel a money manager needs to succeed.

If you have any questions or would like my opinion about how you can benefit, feel free to contact me. For our contact information click here.

Michael Matousek, CMT
Portfolio Manager, 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/

Investor Sentiment

Investor Sentiment is important for traders when determining a directional bias for their swing trades. Remember, swing trading consists of trades generally last more than a day and can continue for a few weeks if the trader’s bias remains constant.

It is even quite common for institutional traders to use the bias generated from investor sentiment analysis to determine the type of scalping trades they make. For instance, if the investor sentiment bias is bearish, the traders generally trade the market on intraday signals from the short side.

Investor sentiment isn’t discussed much in the mainstream media, but it is an important tool in determining market bias. I’m not sure, but maybe it’s not mentioned because it doesn’t have “sizzle” or is as “black and white” as a moving average. Or, perhaps, it’s due to the fact that it is a “smart money” indicator and the “dumb money” wants avoid learning how their emotions fueled the huge turnaround they recently missed. Whatever the reason, the less people educated about market psychology the better the market becomes for the informed trader.

“Smart Money” or institutional investors do the difficult work and look deep at the internals of the market while everyone else waits for the media to explain it. Since it is difficult to find the CBOE VIX or the Put/Call ratio from one source, I need to dig through multiple web sites to determine the current readings of each one.

Here is a site that has a few of the indicators I mentioned http://www.schaeffersresearch.com/.

Robert J. Ogilvie
CIO and Head Trader
http://www.skyboxtrading.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

Complete ETF List – ETF Providers

To learn more about ETFs, how they are constructed, what types are available and which ETF is the best ETF for your investment portfolio you may want to take a look at the following ETF company links.

Here is a current list of ETF Providers:

Barclays iShares
SPDRs
PowerShares
Rydex Funds
State Street Global Advisors
Merrill Lynch HOLDRS
BLDRS
Vanguard ETFs
Fidelity
Deutsche Bank
First Trust Portfolios
WisdomTree
ProShares
HealthShares
Market Vectors
XShares
Arrow Funds
Claymore

If you would like to learn more about how the stock market exchanges work here are the links to a few exchanges:

NASDAQ
NASDAQ Trader
NYSE
AMEX

Happy Trading

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

Trend Trading ETFs – What Moving Averages You Should Avoid!

If you trade in the markets I’m sure you have heard the phrase “the trend is your friend”. The phrase makes seems to make sense, IF you truly understand trend trading.

If I had the opportunity, I would change the phrase to “The Trend is Your Friend, IF you know which trend you should be looking at.

Many times I’ve met traders that look at long term trends, but seek a short term trade. Personally, I think this is a rookie mistake since they are only looking at one trend. I can show many instances when traders take losses thinking they are trend trading, which are, but they are selecting the wrong parameters when determining the trend.

For example, one trader I met used the 50 day moving average for swing trading two to three day moves. He has the right idea, sort of, but the price of the ETF could literally fall 10% and the trend would still be intact. Since he was swing trading for such a short time period compared to his trend indicator he couldn’t give his trades enough “wiggle” room to actually work. Therefore, he was constantly getting stopped out for a loss only to see the ETF rally back to a profitable level a few days later.

What’s the moral to this post? Traders need to select a trend that corresponds to their trading time horizon. My trade time horizon is about half of the time it takes to create the end value of the indicator. For example, a 10 day moving average would generally command a four to five day holding period for the ETF in question.

For more swing trading tips or swing trading education visit my website http://www.etfupdater.com/.

Good Luck and Happy Trading

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