Exchange-traded funds (ETFs) are a great investment option that a lot of newcomers to the investment industry decide to exploit. The problem with ETF trading (as well as with trading of any kind), lies in the fact that you can’t just trade on random or even use your intuition to make these calls. This is something that a gambler would do, not an ambitious trader. In order to avoid this kind of risk-seeking experience, what you need to do is figure out the right trading strategy and stick to it for at least a year. This way, you’ll give it time to show some results. With that in mind and without further ado, here are the top five ETF trading strategies that you, as a beginner, should consider.
The first thing you need to understand is that there’s no such thing as a 100 percent reliable investment. Even the trends that seem to be the most fail-proof will, on occasion, start going south. So, if you put too much trust in them, you might find yourself in a bad spot. With the help of asset allocation, you will diversify your portfolio and have a part of your investment in stocks, bonds and commodities, which will allow you to always win on at least one front. Fortunately, the low investment threshold of ETFs makes this quite simple to pull off.
The truth is that there is not a lot of ETFs whose value stays the same over the course of time. This is why you need to consider the concept of swing trading. You see, swing trading is a distant relative of the more popular day trading option, where you try to wrap up all your trades within the same day. The idea of day trading is that you shouldn’t leave any trades pending overnight, seeing as how you want to be able to respond in real-time. With swing trading, on the other hand, you’ll leave these trades to work out for days or weeks until they reach the value that you find to be fitting. Still, one of your objectives in this period is to monitor your ETF and do extensive research on all the factors affecting it.
If you’re a newcomer to the industry, one of your main objectives is to feel out the market without exposing yourself to too much risk. They say that, when trading, you either gain financial value or experience, which is why you need to consider hedging your funds. While this will somewhat limit your gains, it will also minimize your potential losses. What this means is that you’re virtually able to experiment in controlled circumstances.
Another thing you need to consider is that investing in ETFs isn’t a get-rich-quickly scheme. It’s something that will take you years or decades until you can amass enough resources to grow your assets to a satisfactory level. In other words, the sooner you start investing, the better. The problem with this approach, however, lies in the fact that, at the moment, you may not have sufficient resources to start with some serious investments. This is why what you’re looking for are ETFs with low fees so that you can get the most out of your modest investment budget.
Betting on seasonal trends
In general, ETFs have seasonal fluctuations, which is a concept that will allow you to capitalize on them. While there are some exceptions to this rule, which are making it somewhat less reliable than you would like them to be, the truth is that, historically, US equities tend to underperform between May and October, especially when compared to the period between November and April. While this is not a general rule, it’s definitely something that you could use.
Finally, once you have enough experience in the field, you might decide to develop your individual investing style. Keep in mind, nonetheless, that before you do this, you need to get some experience in the field, as well as learn enough about the already existent investment strategies. Only after you’re comfortable with these options should you consider customizing them to your own benefit.