In order to effectively swing trade ETFs, it is important to develop a clear strategy before you even begin to know when you will enter the market as well we when you will exit. Here we will cover a few common ETF swing trading strategies that many traders use to maximize their profit potential and minimize their risk as much as possible.
Learning to Look for Indicators
One of the best ways to develop your own personal ETF swing trading strategy is to learn how to look for indicators of when it might be a good time to buy, as well as know exactly at what point you want to sell. Since swing trading is a very short term investment that only lasts a few days or weeks, you want to have a clear target goal for when to exit the market.
The majority of ETF indicators of when to buy or sell are based on technical analysis and stock chart patterns. While not entirely foolproof, these charts give you a good idea of what type of activity is happening. You can also find a number of key statistics on most stock charts which will also provide useful information to help you develop a strategy you feel confident about.
The Importance of Diversification and Using Disposable Income
With any ETF swing trading strategy, it is important that you do not tie up all of your money in just one ETF. It is best to diversify, because there is no guarantee that any particular ETF is going to perform exactly as you will hope it will. While there are risks for any type of investment, you will always want to minimize your risk as much as possible. By using only capital you can afford to lose or have tied up, it will give you the ability to continue investing. Remember the old adage: “Time is Money” – this is particularly true in swing trading!
Here are Two Possible ETF Swing Trading Strategies to Consider
The 50 Day Moving Average Strategy
The 50 Day Moving Average is a price average over the last 50 days, which serves often times in technical analysis as the “resistance level”. You can use the 50 Day Moving Average as a way to notice trends such as a bullish or bearish crossover. This can be helpful when looking for stock patterns in technical analysis to help you analyze what direction a certain ETF may take. By analyzing the 50 Day Moving Average, you may be able to spot and identify trends.
Sector Analysis Strategy
This strategy is relatively simple, yet quite effective in finding good ETFs to swing trade. It may almost seem “too easy” at first.
Step 1: Research Top Hottest Stock Sectors
There are a number of ways to research the top hottest stock sectors. You can simply google “top stock sectors” though be forwarned this may not give you the latest up-to-date information.
Another way to find top industries is through the FinViz Group Screener which is a stock screener that gives you some data on the top performing sectors.
Step 2: Think About Upcoming Industries Which May Get Hot
There are many industries which may get “hot” but currently are not. Base it on your own experience and be aware of trends happening so you can get on board before the rest of the world catches on. Think about what services, products, and companies you might be using.
Step 3: After Researching the Hot and Upcoming Sectors, Narrow Down Your Choices
Once you have a list of maybe 10 sectors or industries you are interested in, you will want to narrow this down to the top 2-3 that you believe will be a viable choice for swing trading.
If you use the FinViz Group screener, you can see the trends of various industries throughout certain time periods, such as the last 3 months for example.
Generally speaking, if you notice a trend, it could be a sign that this may be a good ETF candidate for swing trading.
Step 4: Find the ETFs which Encompass this Sector
Once you have chosen two or three sectors to focus on, your next step is to find which ETFs are available in these sectors.
The easiest way to do this is to go to an online search engine and type in something such as “industry name ETF list” – for example “automotive ETF list” or “solar power ETF list”. This will give you a nice list of popular ETFs to choose from.
Step 5: Analyze the ETFs from the List
Once you find ETFs, you will want to look at the individual assets in each ETF and choose the right ones for you based on your own intuition and experience. Choose an ETF from your list by analyzing the stock chart patterns. You will also need to do your own due diligence in researching the various assets included in the ETF.
Step 6: Choose Entry and Exit Target Points
After you have successfully decided on an ETF, you must then choose your entry and exit target points. This is where learning how to read candlestick charts can be extremely useful for predicting when a price change may occur.
Learn & Research to Determine Your Own Strategy
When it comes to choosing the best strategy for swing trading ETFs, the best thing you can do is research the various available ETFs, the industry news and performance trends, and choose ETFs which have favorable conditions for swing trading, such as lots of action and an upward trend. Learning how to swing trade ETFs is crucial. While you will only be holding on to the stock for a few days or perhaps a week or two – this can result in big profits in a relatively short amount of time when executed with a clear entry and exit strategy.
Do you have any tips or ETF swing trading strategy ideas you would like to share? What are your thoughts on these two popular choices for finding ETFs to swing trade? Share your comments below or join the discussion in our Trading Talk forums.