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:
Most experienced market participants have heard the phrase, 'beginners buy breakouts, professionals buy pullbacks".
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 – I assume 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. This means greater risk with each trade - why would any astute market participant want to take on additional and unnecessary risk?
The majority of newsletters generally focus on breakouts, my Swing Trade Playbook focuses on pullbacks and rallies. Subscribing to my informational service not only assists subscribers diversification of trade discovery tools, but subscribers get see the trades I anticipate doing the day before I attempt the trade. This included my 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, I 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/
