Mon 21 Aug 2006
A topic that I played around with extensively over the weekend is trading sector ETFs on a small scale.? Now I know the general guidance is to avoid trading sector ETFs since there’s a great deal of market forces unbeknownst to many when you get into sector trading.? The general guidance is to stick to major classifications, like large-cap, mid-cap, small-cap, etc. since it’s too risky trying to time buying and selling sectors.? While it’s true that the risk is greater trading sectors, I think there’s a higher chance for profit as well and ETFs present an attractive medium for trading sector ETFs.
First off, my goal is “near-term” growth and earnings.? I’m going to stick with my “long-term” plan for retirement with my consistent asset allocation in low-cost index funds, dollar-cost-averaging, emphasis on tax-leveraged options and periodic rebalancing.? The long-term plan will comprise the significant majority of my investment portfolio.? But I’m looking for a system that’s interesting and profitable to put some of my extra investment money into.? I want something that will not just be profitable, but hopefully educational as well.? It seems logical to me to start learning more about what makes various sectors (or industry classes) of the market tick and I’d like to learn more about how they respond to various forces vs. the market as a whole.
I’m working now on gathering a collection of buy, hold and sell signals to look for.? I’m also gathering additional ETF sites worth reviewing for potential opportunities and information, such as IBD’s ETF site and ETFSreen.com (which also has a nice ETF Relative Strength Trends analysis) and ETF Center’s Leading/Lagging screen.
My goal is to start a virtual trading account this week with a small amount (and $7/trade virtual commission fees), trade for 3 months and hopefully log at least 10 trades.? At the end of this period I’ll see if this proved to be a profitable enterprise on paper.? If I’m not profitable, I’ll reassess and see if I need to invest more time and research into the project or abandon it entirely.? If it is profitable and I can justify the profits outside of pure luck or general market rallying, then I’ll open an account with Scottrade to focus on holding 1 or 2 sector ETFs at any given time for a period of 1 week to 1 month or so.? My goal will be to extract short-term profits from individual sectors.
I’ll see if I can keep it fairly simple and make trading decisions without excessive research.? I’m still looking for something that can provide decent trading signals with fairly little effort.? Don’t worry, I won’t be lazy.? I’m planning on spending a great deal of time and research learning about individual sectors, what makes them tick and what they’ve done historically in response to various news items or fundamental information (like jobs reports, CPI numbers, etc).? My goal is to try to learn who profits most and who’s hurt the most by various economic indicators or sensational news stories.? I’ll post my findings and research here, of course.? This should be interesting!
August 21st, 2006 at 9:32 am
The “general guidance” is for people who don’t know what they’re doing… as is most conventional wisdom. I wouldn’t recommend sector trading to anyone not willing to do the homework to know the risks and what to expect (a.k.a., what you are doing).
Add http://www.etfconnect.com to your list of resources, as well as Yahoo’s ETF Center. I’m not sure if they overlap a lot with the sites you already listed.