Monday, October 20, 2008

Exchange Traded Funds

Exchange Traded Funds (ETF's) are becoming more and more popular in the every day market. There are several ETF's available that trade millions of shares per day. The heavy volume translates to high liquidity, qualifying many of them as great Day Trade candidates. Some great examples of ETF's that qualify are QQQQ, DIA, SPY, QID, QLD, IWM, and many more! Of course, knowing when to trade and in which direction is the key to profitability.

We use 4 key rules to help maximize your ETF trading profits:
1) Careful Position Entry: When you initiate a trade based on a signal, the reasoning behind the
trade will be clear. We do not feel the need to have an open position at all times--every trade
will have a purpose and statistical probability of profit.
2) Strictly Limit Risk: Your day trading alerts on ETF's will be wrong sometimes. That is why
every day trade will have a well-defined stop loss that gets you out of the position as soon as
the trade is clearly moving in the wrong direction.
3) Let the winners ride: Scalpers and losing traders like to take profits quickly. We believe in
holding positions for as long as they still have a reasonable chance at even bigger profits. Once
an ETF trade has moved solidly into profitable range, we will often move our stop to our
entry price and hold the trade until it has PROVEN to us that it isn't going to breakout even
more. This will often result in a day trade that exceeds our original profit goals.
4) Scale In/Out: Initiate Trades with 1/4 of your intended position and Add-on in 1/4's as long
as the support holds. The same strategy is used as an trade exit - start selling your position as
it approaches target levels. This gives you an option to let a partial position "ride" while locking
in profits on the balance.

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