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Exchange traded funds capture BOTH broad market moves as well as sector-specific breakouts and pivots, depending on which ones you trade. Some are choppier than others. See the video below for actual trading insights.
Here's a quick roadmap designed to help you trade different types of ETFs, based on differences in the sectors and indices that you may be interested in day or swing trading with your exhange traded fund trades:
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Index ETFs and Sector ETFs: Useful ETF Trading Differences and Considerations
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Ideal for active traders who do not want to have to scan through hundreds of stocks to "cherry pick" specific stock plays, the index ETFs are ideal for capturing broad market moves. Suited for both day and swing trading, these ETFs enable traders to quickly make trades based on market breakouts or breakdowns.
Many investors and longer-term traders also like trading the index exchange-traded funds instead of buying mutual funds. (see the video below for examples). Using typical signals like horizontal support/resistance lines, daily candle chart patterns and 50/100/200 MA crossovers are favorite techniques for the longer-term trader.
There are also short index ETFs like the DXD, QID, and SDS that go up in price when the broad markets sell off, providing savvy traders with an opportunity to capture moves in market "down" days, or weeks, by buying these during market drops.
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While index ETFs track broad overall market direction, sometimes traders like to narrow their focus on specific market segments, which often can outpace the broad underlying markets.
Examples of these include FAS (long 3x financial), FAZ (short 3x financial), ERX (long 3x energy), ERY (short 3d energy), URE (long ultra real estate),
and others. By "3x", this refers to what are known as leveraged ETFs, which move faster than single-leveraged exchange traded funds.
The benefit of trading these sector ETFs is that when a given sector is currently outpacing the broad market, traders can put on trades in these and capture potentially bigger moves than the broad market makes.
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Watch as our trader explains an introduction to sector vs index ETFs, and trading insights for each. Cost: FREE |
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