When choosing an ETF trading system that will be effective a person will want to factor in their own eccentricities. Some people enjoy doing analytical work and following trends. Other people want to have a software program or web service that will do the leg work for them and give them the best bet on an ETF trade. The systems that are available run a wide gamut. ETF trading systems have hundreds of systems that work for some people and don't work for others.
The system that will work for a new trader will depend on the type of trading that is going to be done, the sectors that will be traded, and the style of trading that a person enjoys. A different system will work more effectively with high risk Leveraged ETFs than with long term ETFs. So, if a trader is going to diversity among several sectors they may need to have different systems in place that will work with each sector.
When selecting a system, it is important to remember that there is no magic trading system out there that will be effective all the time. When people start using a system that they have been told is the magic bullet they are disappointed and frustrated very quickly. The ETF is made up of millions of small moving parts that each affect the trades taking place. A system that may work for one person might not be as effective for another. Finding the system that works for you will be developed over a period of time as strategies and systems are tried and discarded or altered.
The easiest system to start with that provides minimal risk and will get a traders feet wet is the EMA system. EMA stands for Exponential Moving Average. It involves following trends, and has a pretty decent risk rating. The ETFs most traded using this system are TLT, XLF, SMH, RTH, and a few others.
The crux of the system is that when the fast EMA crosses above the slow EMA a trader goes long. When the slow EMA crosses the fast EMA, the trader goes short. The rule is that a person has to leave or reverse their position the date after the fast EMA and slow EMA cross. And, when the rules have been set up on the days for the EMAs to cross, usually fifteen, the trader needs to stick to them.
The more historical and analytical data a person can collect when developing a trend tracking system, the more accurate they will be. Setting buy and sell limits will help to create a safety net for trading that a person will want to have when they first start trading.
A good rule of thumb is to set a risk allotment. Set the percentage of the total capital that one is willing to risk on any one position, then stick with it. When the account reaches the minimum don't add more fuel, just move on. The other rule is to set the number of losing trades in a row that will be accepted, then cut back by a set percentage after that loss has been reached.
The most effective ETF trading system will be the one that works for the individual using it. When looking at different systems one must be as analytical as when they are planning on trading in a sector. Find out the consistent success of the system and how it worked in the sector that one is considering using it in. By discussing systems and strategies with a person who has knowledge of ETFs, trading strategies and systems, a person will be able to achieve successful trading within a short time.
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