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Thursday, December 3, 2009

Utilize Sound ETF Trading Strategies In Order To Succeed

By Patrick Deaton

Exchange traded funds can be a very good investment vehicle for those who are looking at increasing the odds of pulling a good income in from trading activities online. Become familiar with ETF trading strategies if you want to succeed, however, as these index funds or trusts have a broad basket of securities within them that can move quite a bit in many markets.

As far as what constitutes an ETF, it is much like a mutual fund in the way that it has been constructed and in the way it is operated. Also, ETFs can be similar to stocks in the way that buying, selling and trading can go on in an ETF. There are baskets of securities within the ETF, and each exchange traded fund tracks a certain market index. A good example is the S&P 500.

Small investors aren't generally allowed to participate directly as an authorized participate in an exchange traded fund. Usually, large institutional investors and the very rich are the only ones allowed direct access. However, small investors can get into ETF fund trading by going through an online exchange traded fund trading system. There are several good ones on the Internet.

It is strongly recommended that anyone who is considering investing some starting capital in a trading system learn at least one or two good strategies for trading before going full bore in a trading system. There are usually two categories of strategy out there; those are fundamental in nature and those that are technical in nature. Many people are attracted to technical strategies.

There are a number of technical strategies that exist, and all of them have certain things going for them. One that is out there and that is good for pointing out when there are potentially profitable opportunities for buying a security is called a "cup-with-a-handle." It's sometimes known as a breakup pattern analysis. Just about every technical strategy tries to identify trends, by the way.

The general strategy with this particular breakup pattern is to buy the stock or the security as the price begins to break upward on larger-than-average volumes of trading. Losses are cut if it begins to drop back to the level just before it began to break upwards (known as the pre-breakup level). There are a series of rising stop levels if the pattern goes up as predicted.

Those who adhere to this particular trading strategies maintain that it delivers great potential for capture of the majority of the move upwards by the security. You are also able to limit losses by setting up a series of stop-loss orders. Some out there say that the opposite of this particular pattern can work just as well, though most experts disagree. Find a dip, breakup and a handle and go for it.

It is always an excellent idea to learn a couple of ETF trading strategies before diving into investing in an exchange traded fund through a trading system online. The potential for income can be excellent when the right strategies are utilized, but always remember that all markets tend to have at least a small element of risk, meaning money can be lost just as easily as it can be made. - 23211

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