Exhaustion gaps sometimes signal a short term top in the market and today’s market action, the gap open and sell off is almost a textbook exhaustion gap.
An exhaustion gap generally happens after an extended strong upward or downward move.
Here is how they generally work out. The market opens significantly higher than the previous day’s close and continues to rally for a short time right after the open (just enough to suck in the “dumb money”). Next, the market sells off, tries to bounce, but can’t since most of the buyers or people interested in buying have bought over the previous few days (that is why the market appreciated so strongly).
Throughout the day, the market continues to drift lower, but can’t find support until the last hour or so of trading.
If you look at today’s intraday chart it was a textbook example of this type of pattern.
What does this mean? The smart swing traders, recognizing the exhaustion gap, sold a little portion of the long positions that were held overnight and opened a few small short positions to participate in the drift lower.
My disclosure:
I held the long XLU (utilities ETF) position and XLP (consumer staples ETF) and opened a short position with the SMH (semi conductor ETF).
Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://etfupdater.com
Friday, November 30, 2007
Thursday, November 29, 2007
Leveraged ETFs - The Leverage Mix-UP
I’ve come across many market participants believing if they purchase a leveraged ETF and held it for an extended period of time, the ETF’s performance should double the index or sector it’s benchmarked against.
Please understand this is not the case. The majority seek to provide a 200% DAILY return on the underlying index they track.
Notice I typed “DAILY”!
Noted in the ETF providers prospectus, which I’m sure we all read quite diligently. It is stated the leveraged ETF is designed to double the Daily return, not the total return for time periods greater that one day.
I noticed this while I was helping a hedge fund that trades ETFs quite heavily. The were using the leveraged ETFs to hedge the portfolio and noticed the hedge was not delta neutral. The hedge was actually appreciating more than what the underlying portfolio was depreciating.
So, why does this happen? Why doesn’t it track properly if market participants hold positions overnight? Compounding! Just as we all like compound interest you get the same effect here, except since the ETF can depreciate in price it can work adversely too.
Over time the effect of compounding and leverage can have a significant effect on the total return of the ETF.
Here is an example assuming a $10,000 investment.
Day 1:
The underlying index increases 1%
The leveraged ETF increases 2%
The first day = 200% return, just as we thought, and we outpaced the market, great!
Day 2:
The underlying index decreases 1%
The leveraged ETF decreases 2%
Underlying Index Value: $9,999 (An increase of $100 and then a decrease of $101 on day two)
Leveraged ETF Value: $9,996 (an increase of $200 and then a decrease of $204)
As you can see the index decreased in value $1 over two days and the leveraged ETF decreased $4 over the two days (this is four times the cumulative index loss as opposed to two times the loss).
Hopefully, I’ve explained this in detail enough for you to see how over a longer period of time the cumulative percentage change of the leveraged ETF has the ability to vary significantly from the underlying index.
Here are a few popular Leveraged ETFs:
QLD
DDM
SSO
MVV
SAA
UWM
If you would like to learn more about leveraged ETFs visit my home page http://etfupdater.com or http://proshares.com.
Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://etfupdater.com
Please understand this is not the case. The majority seek to provide a 200% DAILY return on the underlying index they track.
Notice I typed “DAILY”!
Noted in the ETF providers prospectus, which I’m sure we all read quite diligently. It is stated the leveraged ETF is designed to double the Daily return, not the total return for time periods greater that one day.
I noticed this while I was helping a hedge fund that trades ETFs quite heavily. The were using the leveraged ETFs to hedge the portfolio and noticed the hedge was not delta neutral. The hedge was actually appreciating more than what the underlying portfolio was depreciating.
So, why does this happen? Why doesn’t it track properly if market participants hold positions overnight? Compounding! Just as we all like compound interest you get the same effect here, except since the ETF can depreciate in price it can work adversely too.
Over time the effect of compounding and leverage can have a significant effect on the total return of the ETF.
Here is an example assuming a $10,000 investment.
Day 1:
The underlying index increases 1%
The leveraged ETF increases 2%
The first day = 200% return, just as we thought, and we outpaced the market, great!
Day 2:
The underlying index decreases 1%
The leveraged ETF decreases 2%
Underlying Index Value: $9,999 (An increase of $100 and then a decrease of $101 on day two)
Leveraged ETF Value: $9,996 (an increase of $200 and then a decrease of $204)
As you can see the index decreased in value $1 over two days and the leveraged ETF decreased $4 over the two days (this is four times the cumulative index loss as opposed to two times the loss).
Hopefully, I’ve explained this in detail enough for you to see how over a longer period of time the cumulative percentage change of the leveraged ETF has the ability to vary significantly from the underlying index.
Here are a few popular Leveraged ETFs:
QLD
DDM
SSO
MVV
SAA
UWM
If you would like to learn more about leveraged ETFs visit my home page http://etfupdater.com or http://proshares.com.
Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://etfupdater.com
Wednesday, November 28, 2007
Financial ETFs - Today's Hot Sector
The Fed’s “jawboning” seems to have helped the market over the past few days, but only time will tell if it is enough to keep the economy from going into recession.
Today, as of this writing the Dow is up about 380 points or approximately 2.93% and the S&P 500 is up about 2.9%. This is the largest one day percentage gain all year. I don’t believe we are out of the woods quite yet so I wouldn’t load up on speculative sectors or margin just yet.
The financial ETFs (Exchange Traded Funds) XLK, IYG, IAT & IAI are the strongest up 5% plus and today’s price action is indicating one of two outcomes. Either Wall Street thinks the anticipated fed rate cut will be the subprime solution or most investors are having short term memory loss concerning the environment of our financial sector. I’m not sure what they are thinking, but I seriously doubt in two days the financial issues are resolved.
Again, only time will tell.
Our portfolio is only 50% invested on the long side and our model still signals defensive ETFs are the place to be. If you would like to learn more about our defensive stance, an ETF update, our swing trading picks or our model portfolios visit http://etfupdater.com.
Our most recent addition to the portfolio was XLU. This energy ETF provides exposure to companies involved with water and electrical power along with natural gas distribution industries.
Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://etfupdater.com
Today, as of this writing the Dow is up about 380 points or approximately 2.93% and the S&P 500 is up about 2.9%. This is the largest one day percentage gain all year. I don’t believe we are out of the woods quite yet so I wouldn’t load up on speculative sectors or margin just yet.
The financial ETFs (Exchange Traded Funds) XLK, IYG, IAT & IAI are the strongest up 5% plus and today’s price action is indicating one of two outcomes. Either Wall Street thinks the anticipated fed rate cut will be the subprime solution or most investors are having short term memory loss concerning the environment of our financial sector. I’m not sure what they are thinking, but I seriously doubt in two days the financial issues are resolved.
Again, only time will tell.
Our portfolio is only 50% invested on the long side and our model still signals defensive ETFs are the place to be. If you would like to learn more about our defensive stance, an ETF update, our swing trading picks or our model portfolios visit http://etfupdater.com.
Our most recent addition to the portfolio was XLU. This energy ETF provides exposure to companies involved with water and electrical power along with natural gas distribution industries.
Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://etfupdater.com
Monday, November 26, 2007
How ETF Sector Rotation Strategies Can Outperform the Market
It seems with latest buzz about ETFs and the ease of trading individual sectors within an index, sector rotation strategies are becoming increasingly popular. So the question I’m frequently asked is “how can your sector rotation strategy increase the odds of outperforming the market?”
The answer is quite simple. A positive outlook for the economy surely helps the broad market, but many times during the economic cycle some sectors will outperform the market and respond more favorably than others due to various external factors. The intent of a sector rotation strategy is to increase exposure to the sectors anticipated to outperform and reduce exposure to the sectors anticipated to remain flat or under perform. In doing so, the portfolio manager can capitalize on market fluctuations with the opportunity to benefit from sector expansions and sidestep sector declines.
Keep in mind there are many ways to formulate a sector rotation strategy. Here are the most popular:
Technical Analysis, the analysis of price action, trend lines or other quantitative factors enabling technical analysts quantify a trend change
Top-down Analysis, the theory that changes in the economy can signal imminent changes in sector movement
Fundamental Analysis, the approach of evaluating company financials within a specific sector
Therefore, if a portfolio manager monitors the general health of the economy, the various external factors that have the ability to drive a specific sector and has a solid money management strategy they have a good opportunity to outperform the broad market.
To learn more about the sector rotation strategy I employ for my clients or how we swing trade visit my website http://www.etfupdater.com/
Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://www.etfupdater.com/
The answer is quite simple. A positive outlook for the economy surely helps the broad market, but many times during the economic cycle some sectors will outperform the market and respond more favorably than others due to various external factors. The intent of a sector rotation strategy is to increase exposure to the sectors anticipated to outperform and reduce exposure to the sectors anticipated to remain flat or under perform. In doing so, the portfolio manager can capitalize on market fluctuations with the opportunity to benefit from sector expansions and sidestep sector declines.
Keep in mind there are many ways to formulate a sector rotation strategy. Here are the most popular:
Technical Analysis, the analysis of price action, trend lines or other quantitative factors enabling technical analysts quantify a trend change
Top-down Analysis, the theory that changes in the economy can signal imminent changes in sector movement
Fundamental Analysis, the approach of evaluating company financials within a specific sector
Therefore, if a portfolio manager monitors the general health of the economy, the various external factors that have the ability to drive a specific sector and has a solid money management strategy they have a good opportunity to outperform the broad market.
To learn more about the sector rotation strategy I employ for my clients or how we swing trade visit my website http://www.etfupdater.com/
Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://www.etfupdater.com/
Saturday, November 17, 2007
I was recently emailed from an individual interested in our ETF Updater informational service. He was asking how someone can learn about technical analysis and swing trading online.
Obviously, there are quite a few ways to learn about technical analysis, daytrading and swing trading. First, the self taught method is probably the most popular, but unfortunately if the self taught technician doesn’t have much interaction with other technical analysis experts they may learn and commit to memory incorrect information. I’ve noticed many times when “self-taught” technical analyst had an incorrect read, did not understand some terminology or even how to correctly interpret a particular study they claimed to have expertise with.
Initially, I went the “self-taught” way of learning technical analysis and swing trading, but I soon realized I had very little resources to turn to if I had a question and it seemed the so called “experts” willing to share their knowledge didn’t know what they were talking about either. It was sort of like the blind leading the blind.
Next, there are trading schools. In a “past life”, I was an instructor at one of the largest trading firms for independent traders. Because of my past experience, I’m always intrigued to learn more about what the latest schools are teaching. Unfortunately, after reviewing many of the various schools curriculum, it seems they attempt to teach a few trading methods for either day trading or swing trading instead of the “how” or “why” the trading method should work.
The topics in my curriculum consisted of Trading Psychology, Market Mechanics, Market Analysis, Identifying Opportunity, Technical Analysis and Risk Management. Basically, I showed people the “How and Why” of trading. Sure, we taught a few strategies, but the “nuts and bolts” of the course was actually to teach the fundamentals so traders can create a style of trading that suites their personality.
The final and I believe the best way to learn about Technical Analysis is to join an organization like the MTA (Market Technicians Association, http://mta.org/). The organization has a program similar to the CFA (Chartered Financial Analyst) except the MTA focuses on Technical Analysis. Once an individual completes the program they are granted to use the CMT (Chartered Market Technician) designation.
I’ll continue to post additional pieces of technical analysis and may start a video blog to compliment my efforts to help teach individuals aspiring to trade for a living, so stay tuned.
Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://www.etfupdater.com/
Obviously, there are quite a few ways to learn about technical analysis, daytrading and swing trading. First, the self taught method is probably the most popular, but unfortunately if the self taught technician doesn’t have much interaction with other technical analysis experts they may learn and commit to memory incorrect information. I’ve noticed many times when “self-taught” technical analyst had an incorrect read, did not understand some terminology or even how to correctly interpret a particular study they claimed to have expertise with.
Initially, I went the “self-taught” way of learning technical analysis and swing trading, but I soon realized I had very little resources to turn to if I had a question and it seemed the so called “experts” willing to share their knowledge didn’t know what they were talking about either. It was sort of like the blind leading the blind.
Next, there are trading schools. In a “past life”, I was an instructor at one of the largest trading firms for independent traders. Because of my past experience, I’m always intrigued to learn more about what the latest schools are teaching. Unfortunately, after reviewing many of the various schools curriculum, it seems they attempt to teach a few trading methods for either day trading or swing trading instead of the “how” or “why” the trading method should work.
The topics in my curriculum consisted of Trading Psychology, Market Mechanics, Market Analysis, Identifying Opportunity, Technical Analysis and Risk Management. Basically, I showed people the “How and Why” of trading. Sure, we taught a few strategies, but the “nuts and bolts” of the course was actually to teach the fundamentals so traders can create a style of trading that suites their personality.
The final and I believe the best way to learn about Technical Analysis is to join an organization like the MTA (Market Technicians Association, http://mta.org/). The organization has a program similar to the CFA (Chartered Financial Analyst) except the MTA focuses on Technical Analysis. Once an individual completes the program they are granted to use the CMT (Chartered Market Technician) designation.
I’ll continue to post additional pieces of technical analysis and may start a video blog to compliment my efforts to help teach individuals aspiring to trade for a living, so stay tuned.
Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://www.etfupdater.com/
Friday, November 16, 2007
ETF Swing Trading - Hedging The Portfolio
I’m a trend trader and trend traders tend to weight their portfolios more heavily in the same direction of the trend. Unfortunately, when trading trends, the portfolio tends to give back unrealized profits during counter trend moves, so to mitigate our drawdown I hedge the portfolio.
For example, say there is a firm called Capital ETF Management, it is near the end of the quarter and the ETF Portfolio Manager deems a correction is imminent. He wants to secure some unrealized gains instead of buying ETF options or liquidating positions.
The money manager calls M1 Consulting LLC (that is my consultancy) and they engage us for additional insight as to how they can reduce risk should a correction occur. Capital ETF Management has a portfolio consisting of the following Exchange Traded Funds a Wisconsin ETF, Copper ETF, Alternate Energy ETF, Wilshire 5000 ETF, China ETF, Precious Metal ETF, Brazil ETF and an Emerging Market ETF.
How would I approach the scenario?
First, I need to determine what security has a near perfect correlation to the portfolio (keep in mind this could be a few different securities depending on the portfolios composition).
After further analysis, we realize the Capital ETF Management portfolio has a near perfect correlation with a Profund’s ETF.
Now I can:
Calculate the estimated volatility of the portfolio
Calculate the estimated volatility of the Profund’s ETF being used as a hedge
Determine when the hedge should be put on
Determine when the hedge should be taken
Note: This should all be calculated and determined before the hedge is put on.
Once I calculate the volatility for the portfolio and the ETF being used a hedge I can determine how many shares must be purchased or sold to put the hedge on.
To learn more about hedging or for more swing trading education visit us at http://etfupdater.com/freeinformation
Mike Matousek, CMT
Portfolio Manager for ETF Updater
http://www.etfupdater.com/
For example, say there is a firm called Capital ETF Management, it is near the end of the quarter and the ETF Portfolio Manager deems a correction is imminent. He wants to secure some unrealized gains instead of buying ETF options or liquidating positions.
The money manager calls M1 Consulting LLC (that is my consultancy) and they engage us for additional insight as to how they can reduce risk should a correction occur. Capital ETF Management has a portfolio consisting of the following Exchange Traded Funds a Wisconsin ETF, Copper ETF, Alternate Energy ETF, Wilshire 5000 ETF, China ETF, Precious Metal ETF, Brazil ETF and an Emerging Market ETF.
How would I approach the scenario?
First, I need to determine what security has a near perfect correlation to the portfolio (keep in mind this could be a few different securities depending on the portfolios composition).
After further analysis, we realize the Capital ETF Management portfolio has a near perfect correlation with a Profund’s ETF.
Now I can:
Calculate the estimated volatility of the portfolio
Calculate the estimated volatility of the Profund’s ETF being used as a hedge
Determine when the hedge should be put on
Determine when the hedge should be taken
Note: This should all be calculated and determined before the hedge is put on.
Once I calculate the volatility for the portfolio and the ETF being used a hedge I can determine how many shares must be purchased or sold to put the hedge on.
To learn more about hedging or for more swing trading education visit us at http://etfupdater.com/freeinformation
Mike Matousek, CMT
Portfolio Manager for ETF Updater
http://www.etfupdater.com/
Consumer Staples ETF (XLP) – Sector Rotation
There is a saying the smartest minds work on Wall Street. I’m sure many people agree and want to follow the “professional” opinions they read or hear, but with all of the misinformation, opinion changing and ulterior motives I’m been asked, “how do you know what to do”?
The answer is simple. Sure, I read other opinions about the market, but I don’t act on them unless the market’s price action corresponds with idea behind the opinion. For example, many of the “professionals” are talking about a recession or possible depression. One went as far as saying this is the worst since the great depression. Now, I don’t know if he is correct, but I do know this, the Consumer Staples ETF (XLP) is composed of defensive companies. This means, the companies in the index make products people should be buying regardless of the health of the economy.
For example, here are a few companies in the index as of 11/15/07"
Procter & Gamble Co. PG
Altria Group Inc. MO
I bet you purchase many of the products produced by these companies or shop with them regularly.
I run a model portfolio at ETF Updater called the “Sector Rotator”. It seeks to outperform the S&P 500 and just before I wrote the post we liquidated the Industrials ETF (XLI) and replaced it with the Consumer Staples ETF (XLP). I’m not pumping the Consumer Staples ETF for investors or Swing Traders, I’m disclosing I do have a position in XLP.
If you would like more ETF Education, Swing Trading Lessons or would like to know when we make changes to our Sector Rotator portfolio visit us at http://www.etfupdater.com/.
Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://www.etfupdater.com/
Thursday, November 15, 2007
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
www.etfupdater.com
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
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
www.etfupdater.com
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
www.etfupdater.com
Commodity ETF Assets Growing
Commodity ETF Assets Growing Exponentially
Assets invested in natural resource ETFs continue to grow at an astounding pace. For example, assets in natural resources grew more to more that $2 billion from about $250 million at the end of 2006.
I generally follow the following commodity ETFs:
DBC, DB Commodity Index
GDX, Market Vectors Gold Miners
GLD, Street Tracks Gold Trust
IGE, iShares Goldman Sachs Natural Resources
DBA, PowerShares DB Agriculture
SLV, iShares Silver Trust
UNG, United States Natural Gas Fund
On another note, JC Penny will be in play today so we will be focusing on the RTH (retail HOLDRS) ETF and the XRT SPDR S&P retail ETF.
Happy Trading
Mike Matousek, CMT
Portfolio Manager, ETF Updater
www.etfupdater.com
Assets invested in natural resource ETFs continue to grow at an astounding pace. For example, assets in natural resources grew more to more that $2 billion from about $250 million at the end of 2006.
I generally follow the following commodity ETFs:
DBC, DB Commodity Index
GDX, Market Vectors Gold Miners
GLD, Street Tracks Gold Trust
IGE, iShares Goldman Sachs Natural Resources
DBA, PowerShares DB Agriculture
SLV, iShares Silver Trust
UNG, United States Natural Gas Fund
On another note, JC Penny will be in play today so we will be focusing on the RTH (retail HOLDRS) ETF and the XRT SPDR S&P retail ETF.
Happy Trading
Mike Matousek, CMT
Portfolio Manager, ETF Updater
www.etfupdater.com
Wednesday, November 14, 2007
Stock and Trends Vs. Fundamental Analysis
The other day I spoke at the National Association of Active Investment Management ETF Symposium. There were about one hundred money managers seeking additional information about tactical approaches to trading ETFs, so I was able to network and meet a few portfolio managers most individuals only read about.
One of the participants was Greg Morris of PMFM Inc.(they manage over $1 billion). We had a great conversation about technical analysis, fundamentals and how they apply to the investment decision making process. I found our conversation to be quite informative and thought provoking. I bring this up because during the conversation Greg told me the following … “All of the financial theories and all of the fundamental analysis in the world will never be any better then what the trend of the market will allow”.
If you stop and think about the quote it makes complete sense. How many times have you entered a position based upon fundamental facts and proceeded to lose capital only to realize you were investing against the trend?
Happy Trading
Mike Matousek, CMT
Portfolio Manager , ETF Updater
www.etfupdater.com
One of the participants was Greg Morris of PMFM Inc.(they manage over $1 billion). We had a great conversation about technical analysis, fundamentals and how they apply to the investment decision making process. I found our conversation to be quite informative and thought provoking. I bring this up because during the conversation Greg told me the following … “All of the financial theories and all of the fundamental analysis in the world will never be any better then what the trend of the market will allow”.
If you stop and think about the quote it makes complete sense. How many times have you entered a position based upon fundamental facts and proceeded to lose capital only to realize you were investing against the trend?
Happy Trading
Mike Matousek, CMT
Portfolio Manager , ETF Updater
www.etfupdater.com
Making Money With More Unprofitable Days Than Profitable Days
I few people emailed asking if I can explain how a trader can have more unprofitable days than profitable days and still make money.
First let me say, my trading is more of a portfolio style than day trading. I started trading and designing client portfolios in 1996, then in 1998 I decided to day trade full time for a living.
Originally, day trading was much easier than it is today. Back then stocks moved in 1/8ths, we were able to short on downticks when others couldn’t, we were provided as much margin as we wanted and the execution systems were years ahead of the other market participants. That being said, you can understand how we were able to make money and not know a thing about how the market really operates.
Nowadays, the playing field is much more level and my trading is more of a portfolio swing trading style (holding positions for multiple days at a time), but when I catch a good move I will hold it until it runs out of momentum. I’m almost always long and short simultaneously, but I don’t seek to be delta neutral. I just try to find a few ETFs I feel are poised to go lower and a few I think are ready to go higher.
My new approach is more reserved since I let the portfolio “breath”. Besides, I don’t need to make money everyday, although it sure would be nice. My philosophy is, “there are approximately 20 trading days in the month, if I can break even on fifteen and have five good days I’m on my way to making money” . Following this philosophy reduces much of the stress inherent with trying to pull money out of the market everyday.
Mike Matousek, CMT
Portfolio Manager for ETF Updater
www.etfupdater.com
First let me say, my trading is more of a portfolio style than day trading. I started trading and designing client portfolios in 1996, then in 1998 I decided to day trade full time for a living.
Originally, day trading was much easier than it is today. Back then stocks moved in 1/8ths, we were able to short on downticks when others couldn’t, we were provided as much margin as we wanted and the execution systems were years ahead of the other market participants. That being said, you can understand how we were able to make money and not know a thing about how the market really operates.
Nowadays, the playing field is much more level and my trading is more of a portfolio swing trading style (holding positions for multiple days at a time), but when I catch a good move I will hold it until it runs out of momentum. I’m almost always long and short simultaneously, but I don’t seek to be delta neutral. I just try to find a few ETFs I feel are poised to go lower and a few I think are ready to go higher.
My new approach is more reserved since I let the portfolio “breath”. Besides, I don’t need to make money everyday, although it sure would be nice. My philosophy is, “there are approximately 20 trading days in the month, if I can break even on fifteen and have five good days I’m on my way to making money” . Following this philosophy reduces much of the stress inherent with trying to pull money out of the market everyday.
Mike Matousek, CMT
Portfolio Manager for ETF Updater
www.etfupdater.com
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