Ideas for Trading ETFs for Profit

08/24/2012 4:07 pm EST

Focus: ETFs

Brian Shannon, CMT


Learn several strategies for trading ETFs for profit each day with Brian Shannon of

How should you be trading ETFs?  Today, we’re talking with Brian Shannon about that very question.  So Brian, you do have some ETF strategies that you use.  Tell us about those.

Okay, my primary market analysis that I do each day on my web site, Alpha Trends, is I look at the trends of the S&P 500, the SPYs; the Qs, which is the Nasdaq 100; IWM, which is the Russell; XLF, the financials; and the SMH, which is the semiconductors. 

So I look at those five each and every day and do analysis on those to be aware of just general trends in the market, key levels of support and resistance, and when is a good time to be long individual stocks as well.  But I do trade the ETFs, because there are a lot of times they trade very well technically, they’re super liquid, and if you want leverage you can go down that route as well.

I want to follow up then on the idea of leveraged ETFs, because as you know, there is a whole lot of debate about how those should be used or not. 

Right.  I think that for most people the leveraged ETFs probably aren’t appropriate.  Trading is a difficult business, and when you look at the trends and—like it or not—you do put your emotions into it.  We always talk about not being emotional.  You have to kind of be a robot to be a good trader and it’s a difficult thing to do, because we care about the money since we work hard to get it.

So it’s going to trickle in there, and when you’re leveraging your money, you’re also going to leverage your emotions as well. And it’s going to make it difficult to make real good decisions, because you’re going to have that extra emotional impact.  So it’s easy to get yourself into a lot of trouble with them. 

There is always the issue of the way that they’re constructed—that they’re always kind of deteriorating in value, the leveraged ones in particular.  You know, for certain times, they’re very good trading vehicles. When a market like the XLF breaks a key level of support, and it looks like it’s going to decline for the next three to four days—the FAZ is great for that.  That’s the triple.  Now, there are doubles as well. They are not as liquid for some people, the reason people really like the triples. Or if the financials are breaking to the long side, the FAS, you can get some incredible movement in there. 

But it’s not for your average mom and pop, definitely.  It’s not anything to buy and hold.  They are great trading vehicles.

Well, thank you very much for letting us know about this. Appreciate it today, Brian.

Thank you.
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