ETF Trading System

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There are several advantages to using ETF’s for a trading system:

  • Unlike ordinary mutual funds, there are no limits on how often ETF’s can be traded. It’s not uncommon for even the best mutual funds today to charge a fee if the fund is not held 90 to 180 days, which severely limits your investment flexibility. ETFs can be traded just like stocks

  • These are diversified within the sector or country, so the risk is reduced, and the persistence of ETF sector trends is consistent enough to trade.

  • There are literally over 100 ETF’s, with the number growing daily. There is an ETF fund is available for almost any market sector, and dozens of countries, so if there is market strength anywhere at a given time, there’s a good chance you can capture it using Exchange Traded Funds. There are even ETF’s being introduced that allow you to take a long position in a bear fund. These exchange traded funds are backed by large financial institutions like Vanguard, Barclays iShares, PowerShares, and the S&P HLDRs, so liquidity and stability are not a concern.

  • You can trade Exchange Traded Funds with about any discount broker, even in many Individual Retirement Accounts (IRA), and many can be traded in odd lots so the minimum amount to invest can be just a few thousand dollars.

The FundzTrader ETF Trading System:

Funds for this trading system are selected using a proprietary metric that captures both fund momentum and volatility. They are then held for about 60 days. The fund selection approach is similar to that used to select the best Fidelity funds in our Fidelity Mutual Fund system.

These systems have been optimized to reduce volatility and drawdowns. You can see that in periods of strong market advances the system can under perform the market, but in down years it should outperform the market. We trade every 60 days as that seems to be long enough for trends to materialize, but gets us out of underperforming sectors before a lot of damage is done.

We have selected a family of about 50 exchange traded funds that have at least 3 years of trading history, and good daily volume so that liquidity should not be a problem. There are several types of exchange traded funds, often referred to as iShares, Powershares, HLDRs, or simply ETF’s.

ETF Investing

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Disclaimer: This material is for your private information. We are not soliciting any action based upon it. Opinions expressed are present opinions only. The material is based upon information considered reliable, but we do not represent that is accurate or complete, and it should not be relied upon as such. We, or persons involved in the preparation or issuance of this material may, from time to time, have long or short positions in, and buy or sell the securities or options of companies mentioned herein.
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