Instead of investing in ETFs one should consider to just trade them. Viewed by many as an investment target, there is the problem of value decay of many synthetic ETFs, probably unperceived by those many. Being a fond, as the name implies, their value should increase over time, which would be the typical right of existence for a fond. But investment bankers seem to like to create synthetic financial instruments and label them misguidingly.
So, how to trade ETFs as a trend trader ? One of the cardinal rules for trend trading is to adhere to a stop loss method. At least this is the basic style of trading trends. If you enter the market and the trend goes ahead, the stop doesn’t get executed. If it gets executed, the trend came to an end. Simple and robust. This trading method will put you on a trend. For being able to really ride trends a trading system with some more tricks may be appropriate.
But because there are so many ETFs out there today and many of them are not continuously eyed by arbitrage traders, there is a trap for stop traders. During the mini crash and other occasions many of these so called fonds crashed nearly to zero, which would have triggered every stop loss order from trend traders who like to automate things.
The answer could be to ignore the stop loss technique and instead just exchange held ETFs for better looking ones. Essentially one could pick a single ETF and just flip the position from long to short and back. Of course that could be done also with more than one ETF. The most flexible trading scheme would hold some ETFs at any time, long or short, choosing them of a preselected group and shunning cash at all.
Flipping into the best trends is sort of the investors style to trade. No stressing moments necessary with precise timing or getting an acceptable price while nonetheless being on a violent breakout. Gone would be all these frustrating dips that shook one out, just to be followed by the sneering upmoves that restarted the trend.
Sadly trading the investor style seems to be a dream that dissolves at day when the exchanges are open and the market randomizes our dreamed gains from our fine trend switcher. Perhaps Penny Stock Alerts will come up with one or the other product in the future that will at least suboptimally allow this fluid trend trading scheme to come true.
When thinking about how this trend switching system could work, it is probably fair to start with some wishes.
First, the system should be usable as an end of day trading system and that should be possible, because timing constraints are somewhat relaxed.
Second, trading should be done automatically or at least the system should produce trading signals that could be followed without second guessing. That also seems plausible if a program finds out what is the better trend at the moment and what is hardly a trend anymore.
Just as a small hint, mathematical operations like Fourier transformations and the like come to mind here. Math has a large arsenal to analyze sequential things like trends, autocorrelations and so on. Putting some of these into a program in a robust way, meaning avoiding curve fitting by all means, could erect Penny Stock Alerts’s trend switcher.