Why actively trade ETFs?

Considering the risk one is taking, I don't think any of these positions make any sense. If a profit is made its just lady luck.
Nothing wrong with your analysis. Just that this is a shit market to trade. The R/R just isn't there and it's not like there's lots of opportunity elsewhere. This environment forces people to take trades they may not have made before.
Good luck though.
 
Quote from IndexTrader:

Considering the risk one is taking, I don't think any of these positions make any sense. If a profit is made its just lady luck.
Nothing wrong with your analysis. Just that this is a shit market to trade. The R/R just isn't there and it's not like there's lots of opportunity elsewhere. This environment forces people to take trades they may not have made before.
Good luck though.
More...

You're certainly right that you have to look harder to find good risk/reward setups. Looking for sector rotation and relative strength/weakness seems to be working the best, but there still tends to often not be much follow-through. Avoiding the broad-market ETFs is key right now.
 
Indextrader,

What kind of trades do you consider not stupid.? Would doing this type of trading via options make better sense due to limited RR?
Seems to make a little more sense than holding a single stock for a swing trade.
 
The point I was trying to make is that I don't see much low/med risk stuff out there. But that doesn't mean I *have* to trade something.

I think the whole market is essentially screwed for awhile and the best thing to do is wait it out. Just conserve your capital 'till better opps. come along.


Quote from GATrader:

Indextrader,

What kind of trades do you consider not stupid.? Would doing this type of trading via options make better sense due to limited RR?
Seems to make a little more sense than holding a single stock for a swing trade.
More...
 
Quote from IndexTrader:

The point I was trying to make is that I don't see much low/med risk stuff out there. But that doesn't mean I *have* to trade something.

I think the whole market is essentially screwed for awhile and the best thing to do is wait it out. Just conserve your capital 'till better opps. come along.


More...

I am swing trading ETFs (sector based and broadbased) regurarly and even I have to say that it is harder to find setups now then 6 month ago, it is possible to find them with nice R/R ratio and make profit on them.
I publish all my setups wit charts and entry/stop/target points and journal of trades made on my web site for free, so you can check them. I will be happy to discuss them if you will find something on them.

You can find setups in ETFTrading discussion category in this link:
http://www.traders.cz/phpBB2/index.php?language=english

Happy trading,
 
I finally got fed up last week watching a 3 hour, 0.6 point rise in MXIM disappear in 5 minutes, and so I started trading SMH, hoping for less volatile, longer term (longer than 15-30 minutes) trades. (I'll be looking at the other higher liquidity ETF's as well)

This thread has been an excellent intro to ETF's.

Deron, your post on Order Routing was interesting reading. Normally I use limit orders to enter, and market orders to exit, but always using (IB's) BEST order routing. I assume all direct access brokers have an equivalent order routing option. Do you always specify your order routing, or do you ever use BEST (or equivalent)? In theory, shouldn't that get you the best execution price, even when ECN's cross the market at reversals (as mentioned in your article)?

A few times, using BEST, I was routed thru NYSE, and watched my market order sit for many seconds, before filling. Does this tend to happen often? That's one reason I only traded nasdaq stocks.

I've been watching to see if in fact $SOX does lead SMH. It seemed to fairly well, but there were two occasions today (9:30 and 10:18 PST, Nov 10) when $SOX broke support to make a lower low and SMH didn't, but these are only really visible on 1 minute charts, so maybe that's insignificant.

There was a comment in this thread somewhere about MM's less able to play games in ETF's. Is this true? Do they not still post large bid or offer sizes, a little away from the inside market to 'create' false support or resistance?
 
The OIH trade hit its trailing stop on Wednesday, Nov 5th at 55.30, for +.60 on the second half. Our apologies for not posting that earlier.

As for the difference in $sox and SMH remember that theres a lot of $sox stocks that are not in SMH. Althought most (if not all) SMH stocks are probably in the $SOX.

The SMH is an ETF and as such has a synthetic bid and ask that is changing according to the value of the underlying securities (mostly AMAT, INTC and TXN). So although the $sox is a good index to watch when trading SMH, they will never be exactly in sync.
 
Hi Dave,

Glad to hear you are checking out SMH and some of the other ETFs. I think you'll find some of the same benefits that I like about them.

To answer your first question about order routing, I generally use ARCA, which is probably similar to IB's BEST order routing. ARCA first looks for an order match within its own order book, but then goes out to the other ECN books, and finally the NYSE if it cannot find any matches. Using ARCA usually enables me to get a decent fill, except with ETFs that have wide spreads (such as RTH, PPH, or TTH). In those cases, I just use limit orders.

I can't tell you why your order took so long to get executed because I am not familiar with the design of IB's BEST routing. Perhaps a call to them would be helpful.

As for SMH, Peter answered your question well. SMH will generally follow the SOX, but the components are not exactly the same. Therefore, you will sometimes have a discrepancy. I recommend you check out www.holdrs.com to see the exact components of SMH. You will then know what to expect with movement of SMH, based on the direction of the leading stocks.

As for MMs not playing games on the bid/ask, I cannot tell you that this does not happen. However, my point was simply that it is irrelevant because an ETF is always going to move in correlation to the exact prices of the underlying stocks that comprise it. Therefore, even if there are no trades going off, the bid/ask will rise in proportion to the fair value of the ETF. Otherwise, arbitrage traders would take advantage of the discrepancy.

Hope this answers your questions.

Deron
Morpheus Trading Group
Quote from davez:

I finally got fed up last week watching a 3 hour, 0.6 point rise in MXIM disappear in 5 minutes, and so I started trading SMH, hoping for less volatile, longer term (longer than 15-30 minutes) trades. (I'll be looking at the other higher liquidity ETF's as well)

This thread has been an excellent intro to ETF's.

Deron, your post on Order Routing was interesting reading. Normally I use limit orders to enter, and market orders to exit, but always using (IB's) BEST order routing. I assume all direct access brokers have an equivalent order routing option. Do you always specify your order routing, or do you ever use BEST (or equivalent)? In theory, shouldn't that get you the best execution price, even when ECN's cross the market at reversals (as mentioned in your article)?

A few times, using BEST, I was routed thru NYSE, and watched my market order sit for many seconds, before filling. Does this tend to happen often? That's one reason I only traded nasdaq stocks.

I've been watching to see if in fact $SOX does lead SMH. It seemed to fairly well, but there were two occasions today (9:30 and 10:18 PST, Nov 10) when $SOX broke support to make a lower low and SMH didn't, but these are only really visible on 1 minute charts, so maybe that's insignificant.

There was a comment in this thread somewhere about MM's less able to play games in ETF's. Is this true? Do they not still post large bid or offer sizes, a little away from the inside market to 'create' false support or resistance?
More...
 
FYI, you may want to check out EWJ, which is the ETF that tracks a large basket of Japanese equities. Long-time subscribers to our newsletter will recall that we have been bullish on the long-term prospects of Japan since the beginning of this year. Since coming out of its 21-year bear market, it is our opinion that Japan is now entering a bull market that will be sustained for at least 3 - 4 years. As such, our plan has been to buy EWJ on each major pullback, hold it for a few weeks to months, and sell it into each new high. Through this strategy, we netted over a 30% gain in two separate EWJ trades earlier this year. Since then, we have been stalking EWJ and waiting for a price correction in the Nikkei that would allow us to re-enter EWJ at a lower-risk price. With the recent correction in the Nikkei, we feel it may soon be time to buy back into EWJ.

Although EWJ broke below its 50-day moving average yesterday, we would like to see a bit more of a price correction because of the huge move that EWJ has made since May. In order to predict an ideal entry point, we have drawn an uptrend line on the WEEKLY chart of EWJ, starting with the May 2003 low. The chart below illustrates this:

EWJ031112.jpg


Notice how the uptrend line that we have drawn converges with the 20-week moving average, right around $8.60. We feel this convergence provides a solid support level that will allow us to re-enter EWJ with relatively low risk. Furthermore, if you drew Fibonacci lines, you would see that the 8.60 level also converges with the 38.2% retracement level from the May low up to the October high. So, it's probably not time to buy EWJ yet, but it is on our radar screen and we are watching carefully. We are also watching EWH, the Hong Kong (China) Fund, as well.

Just my 2 cents. . .always do your own research.
 
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