Posts Tagged ‘etf’
EWI’s Newest Service Picks ETFs: Interview with the Editor
EWI’s Wayne Stough adds another Flash opportunity service to the line-up: ETFs
By Elliott Wave International
Every trader or active investor at times wishes they could pick the brain of a pro that has “pulled the trigger” on real-money trades before.
EWI Director of Analysis Wayne Stough is one of these pros. For several years, several times per month, he’s been alerting his Flash service subscribers to opportunities in futures markets.
And now, there is a new addition to the Flash service line-up: ETF Opportunity Flash. We caught up with Wayne in his office and asked him a few questions:
Q: What method do you use when looking for high-probability trade set-ups?
Wayne Stough: My main approach is The Elliott Wave Principle. I look for clean, precise wave counts — usually ones that other analysts can confirm, so there is a general consensus on market direction. Once the market meets my other criteria for a high-confidence trade, I send out a Flash recommendation to my subscribers.
Q: How do you define a “high-confidence” trade?
WS: That’s a good question, because no market forecast is ever guaranteed, whether you use Elliott or some other forecasting method. Having said that, there are definitely moments when probabilities (or odds, if you will) strongly suggest a particular move. For example — and this is just basic Elliott — the Wave Principle says that markets move in a series of five waves in the direction of the larger trend (labeled on a chart 1, 2, 3, 4, 5) and three waves against the trend (labeled A, B, C). Also, there are certain proportions between these waves that markets often adhere to. So whether I’m counting a 1, 2, 3, 4, 5 pattern in a rally or a decline (i.e., in a bull or bear market), I focus on where the fifth wave should end, according to Elliott wave guidelines.
Once I’ve identified that price termination point, it becomes a matter of waiting for the market to get there. Fifth waves come at the end of the pattern and are usually weaker than third waves. So once I see certain technical indicators diverging (e.g. the RSI), my confidence grows: We are near the end of the pattern, and prices are about to reverse. That’s just one example of a high-confidence situation. But I do suggest a protective stop with every new Flash alert, in case the forecast doesn’t come true.
Q: Are you aiming for a particular percentage gain?
WS: Absolutely. When I send a Flash alert, I’m typically looking for a 3-to-1 ratio, at a minimum.
Q: Does that always work out?
WS: No. I monitor the recommendation for warning signals that let me know when a different scenario is unfolding in the charts. In those cases, I send out another Flash alert suggesting to lower or raise the stop-loss level, or exit the recommendation entirely.
Q: They say you love the S&P Mini as a trading vehicle. Why?
WS: I’d put it differently. I have traded the S&P for a long time, I understand that market’s nuances, and I like the leverage and volatility. But while the S&P comes naturally to me, I’ve also made many Flash recommendations on other markets, like gold and currencies. So, a better way would be to say that I love any market that gives me the desired risk-reward ratio. Now I’m also “looking for love” among various ETFs.
Special Introductory Offer: Get ETF Opportunity Flash now and have 2nd month FREE. Details.
Q: If traders expect a bear market, should they still consider Flash Services?
WS: Absolutely. I think we’re at the cusp of something very big in the stock market. And this is the time to act. Just keep in mind that speculating in severe bear markets (or during extreme volatility) carries additional risks. So be sure you do your research and know how your financial instruments behave under these conditions. And anyone who chooses to trade in this environment must only risk the money they absolutely can afford to lose.
Q: Who do you think should consider subscribing to EWI’s Flash Services — including the newest addition, the ETF Flash?
WS: Anyone who has some risk capital but not enough time or experience to find their own opportunities. Anyone who understands and accepts the fact that when you bet your money, there will be winners and losers. (Sometimes more of one than the other.) Anyone who knows better than to risk all their capital on a single recommendation; the old “all eggs in one basket” situation. I think in terms of quarters: I want all my subscribers smiling at the end of a quarter.
EWI ETF Opportunity Flash service now brings you potential high-probability opportunities in exchange-traded funds (ETFs). Don’t miss this special offer.
This article was syndicated by Elliott Wave International and was originally published under the headline EWI’s Newest Service Picks ETFs: Interview with the Editor. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
Why you will absolutely fail in trading if you don’t master this
There are many misconceptions about money management. Most think it means trading with stops, but that is only a small part of it. Below is a short part of the complimentary report I’ve found called “How to Safely Double Your Profits in 2009 Trading ETFs.” This little tip alone could save your trading account.
Why use risk controls?
Every trader/investor must guard himself against drawdowns, which refers to the percentage drop in his account size after one losing trade or consecutive losing trades. For example, imagine that after losing a few trades in a row, your $20,000 account is reduced to $12,000; that would be a drawdown of 8,000/20,000 = 40%. If I were to ask some new traders, “In order to be back up to $20,000, what percentage return do you need to generate?” Many would answer, “Since I lost 40%, I have to make back 40%!” This couldn’t be more wrong! Note that after losing 40%, the trader now starts with a lower base, i.e. to undo the $8,000 loss, the return he needs to generate is 8,000/12,000 = 66.6%! That is why I share free training videos on my website to help dispel some of the myths of trading.
The more severe the drawdown, the harder it becomes to undo the damage, as shown in the numbers below.
Drawdown % %Required to get back to break even
10% 11.1%
20% 25%
30% 42.8%
40% 66.6%
50% 100%
60% 150%
70% 233.3%
80% 400%
90% 900%
That is why all professional money managers only risk 1-2% per trade. It’s because no matter how good your trading system is at some point it is a statistical fact you will have 10 losers in a row. Based on risking only 1-2% per trade this is only a 10-20% drawdown and easily recovered. 99% of the hype trading and investing courses in existence don’t say or do this. They say risk 5-10% per trade. It is wrong and will cause you serious financial pain if you follow their advice.
Many of them also use arbitrary stop loss advice. For example, they say, “Place your stop at $100.10 because that is on the other side of a major support or resistance, trend line, MA, etc.”
This makes your risk based on the size of the stop. That is also wrong because the risk can be too large and it’s not the same risk on each trade.
Others reverse this and say risk only 2% total period and let that determine your stop. This is also wrong and will hurt you because it is important to have the correct technical stop.
The answer is to do both. Use a percentage and technical stop together. It works like this. Let’s say the technical stop is $100.10, but based on your entry price that is a 3% risk. Since your plan calls for a 2% risk you simply lower the number of shares you are trading. This lets you stay within your 2% risk and have the correct technical stop. This is exactly what most professional money mangers do.
Some say that this will lower their profits because of trading fewer shares. So what! Study the numbers above again. You know the old quote, “More risk equals more reward.” Well it’s not always true. Sometimes more risk equals more risk! If you lose your money you have no chance to make a profit. Even losing 50% is disastrous because you would then need to make 100% to get back to even.
Like Warren Buffet says, there are only two rules in investing. Rule #1: Don’t lose money. Rule #2: Don’t forget rule #1.
I’d like to add a third rule. Correct money management and position sizing must be mastered to ensure your long term success.
The good news is that it is easy to have correct money management and position sizing. I just explained how to use a combo of a % stop and a technical stop. If you want more of an explanation please visit the free video area on this website and click on the “Why have risk controls” video.
The system of entries, stops and profits taking is only half of your key to success. The other half is money management. If you get this part wrong you will lose your account every time regardless of how good your system is.
Click here for a newsletter on how to safely average 6% per month trading Exchange-Traded Funds.
http://www.etftrendtrading.com/cmd.php?af=1115334
Thanks, and good luck!
PS- In order to access these powerful FREE videos you must first opt in for the complimentary report.
The Next Sector to Outperform the Market
By: Anthony Haddad
The market rebound, which began in March, has so far increased the value of the S&P 500 by about +55%. Economic indicators are still weak, but the market tends to lead the recovery by several months.
Despite the worry, cyclical stocks — those affected by the economic cycle — are up sharply. Financials are up +146%, industrials are up +74%, consumer discretionary is up +70%, and technology is up +55%. On the other side of the spectrum, defensive stocks — those generally thought to be immune from the underlying economy’s swings — have underperformed. Utilities, for example, are up just +30%. Staples are up +31%. Health care is up +31%.
This is what the beginning of bull markets look like.
In the early stages, high-tech and industrial shares outperform. As the bull gains legs, basic-industry stocks enter the picture. At the peak, energy and metal companies outperform.
In bearish periods, consumer staples and service stocks outperform. On the way down, it’s utilities. Near the bottom, financial and consumer cyclical stocks lead the pack.
During the past three months, the story has been largely the same as it has since March. Financials have beat the S&P by 10.6 points, industrials by 6.5 points, and consumer discretionary by 4.7 points. All other sectors have lagged, although technology hasn’t lagged by much (-0.7 points).
If history means anything and the bull is real, going forward cyclical stocks will continue to outperform the market and defensive stocks will lag. That means you’ll continue to want to hold shares of companies in industrial, consumer discretionary and technology companies.
But in particular I think there’s a real opportunity in technology because of how it has lagged other cyclical sectors since March. Up +54% since March, tech has performed just slightly worse than the S&P (+55%). That’s unusual for this stage of the market cycle, and that could change quickly.
For broad coverage in this sector, an ETF like the Technology SPDR (NYSE: XLK) does the trick.
Anthony Haddad
Staff Writer
StreetAuthority.com
How to Trade China with ETFs
by Ron Rowland
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Right now, China is celebrating 60 years of Communist party rule. Most of the party-goers aren’t old enough to remember anything else, of course, but that isn’t stopping the nationwide festivities.
The sheer scale of China is mind-boggling! Just think about it …
- 1.3 billion people — more than 4x the U.S. population …
- 3.7 million square miles …
- And borders that touch 14 other nations!
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| Communist China Turns 60. |
Back in the 1970s, the Chinese government figured out that the whole “central planning” thing wasn’t working so well. And communist ideology gave way to a pragmatic mix of state ownership and entrepreneurial capitalism.
It worked … China’s economy is now 70 times bigger than it was in 1978, when the economic liberation began. Depending on how you calculate, China is either the second or third largest economy in the world!
The vast industrial base, concentrated in the coastal regions, is transforming China. Farm workers from the massive interior are drawn by the relative high pay of factories. New cities spring up out of nowhere to house these workers and provide for their needs …
… And now many of the products that were once immediately shipped to the U.S. or Europe are staying at home, snapped up by China’s newly-prosperous middle class.
A middle class in a communist society? Hard to believe, yes, but there really is such a thing in China now. And there’s an entire younger generation that now knows what they’re missing — and they’re working hard to reach the next level.
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| China’s new middle class is on a shopping spree. |
So if long-term rewards are what you’re looking for, China represents an amazing investment opportunity. But how do you play it?
First, recognize that anything China-related is going to be a roller-coaster ride, just as it has been the last few years. Therefore don’t invest unless you’re prepared for the bumps and jerks.
Second, know how much risk you’re taking. Individual Chinese stocks can deliver amazing profits, but they can be hard to trade. That’s why I think exchange traded funds (ETFs) are the best way for most investors to get involved in China’s hot market. And you have several choices — some diversified, some more specialized.
Here’s a quick summary:
Broad-Based China ETFs
U.S. investors can pick from four ETFs that track diversified Chinese stock market indexes:
- iShares FTSE China Index Fund (FCHI)
- iShares FTSE/Xinhua China 25 Index Fund (FXI)
- SPDR S&P China (GXC)
- PowerShares Golden Dragon Halter USX China Portfolio (PGJ)
Each of these ETFs takes a slightly different approach to constructing a China portfolio. FXI holds the 25 largest Hong Kong-listed companies that are available to foreigners. FCHI and GXC are similar but add some mid-cap stocks to the mix. They’re a little more diversified than FXI. All three are capitalization-weighted.
PGJ takes a somewhat different tack. First, it includes only Chinese stocks that have a listing on U.S. exchanges. Second, PGJ uses a tiered-weighting method, which results in the sector mix being a little different from the others.
Specialized China ETFs
If you want to get a little more aggressive, Claymore offers two China ETFs that have a tighter focus:
- Claymore/AlphaShares China Small Cap Index ETF (HAO)
- Claymore/AlphaShares China Real Estate ETF (TAO)
HAO is a good way to get exposure to small, fast-growing Chinese companies. These stocks tend to be less dependent on exports and more related to China’s domestic economy. TAO gives you an opportunity to profit from China’s real estate and construction boom.
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| China is growing like crazy. |
Inverse and Leveraged China ETFs
What if you think that China’s stock market has gone up too far, too fast, and is due for a quick drop? You may still be able to profit with ProShares UltraShort FTSE/Xinhua China 25 (FXP). This is a 2x leveraged inverse ETF. For instance, on a day when the underlying index goes down 2 percent, FXP is calibrated to move twice as much in the other direction — up 4 percent in this example.
On the other hand, if you’re bullish on the Chinese market, there’s the ProShares Ultra FTSE/Xinhua China 25 (XPP). This 2x leveraged “bullish” fund aims to give twice the daily move in the same direction.
The leverage factor for ETFs like these is reset daily, so the 2x math doesn’t always work for periods longer than a day. In other words, FXP and XPP are best used as tools by short-term traders, but if your timing is right you can make big profits from them.
Chinese Currency ETFs
If you want to bet on China’s currency, the renminbi (also called the yuan), you can do it with these two instruments:
- Market Vectors Chinese Renminbi/USD ETN (CNY)
- WisdomTree Dreyfus Chinese Yuan Fund (CYB)
There’s one key difference between the CNY and the CYB: CNY is actually an exchange traded note (ETN), not an ETF. Practically speaking, ETNs work much the same way as ETFs, but they’re actually a form of debt instrument. I wrote about the unique risks of ETNs earlier this year in my Money and Markets column.
Chinese law prevents the funds from directly investing in the renminbi, so they hold currency derivatives known as nondeliverable forwards. These are similar to futures contracts, which reflect a market’s expectations. As a result, these funds might not perfectly track the yuan.
As you can tell, there are plenty of ways to invest in China’s stunning growth story. I’ve only covered a few of them here, and ETF sponsors are planning many more. Do your research first, but don’t overlook China. The opportunity is too big to pass up!
Best wishes,
Ron
