5 ETF Trading Strategies for Beginners – Unboxing Startups
| 3 minutes read
You may have heard of ETFs or SPXs, and some of you even have them in your portfolios, but not many investors are aware of the diverse ETF trading strategies for Beginners has to offer.
In this article, we will list the ETF trading strategies below; you will be more of a savvy trader and have more weapons in your investing arsenal.
But before that…
What is ETF (Exchange-Traded Fund)?
In simple words, Exchange-traded funds (ETFs) are multiple stocks usually traded in an open market during trading hours, which is similar to mutual funds. When you hear the term single ETF, it means it’s a set of stocks – or other assets such as commodities – containing between 10 to more than 600 shares of different companies.
How to Start Trading ETFs?
The best way to start trading ETFs is by finding the best broker as per your requirement that meets your trading demands. To understand how ETF works, kindly read till the end, and we’re sure you will gain knowledge.
Additionally, ensure you have the strategies and know when to draw the gun if you see an opportunity for profit. Identifying ETF trading methods will also help you specify a specific market and focus on benefiting from it through exhaustive research.
Five ETF Trading Strategies
1. Use ETFs to Increase Exposure to an Industry
Maybe you don’t want to invest in a market as much as a particular industry. For example, do you think clean energy generation is the next “green” advance? Maybe a clean energy ETF is the way to go. Whether it’s finance, defense, or even technology, it’s much easier to buy sector ETFs than to try to sideline the market for sector stocks.
2. Foreign ETFs Give You Access to International Markets
Foreign investing could be complicated, including high foreign tax, currency adjustments, and overseas challenges. However, this is not the case with every ETF; some make foreign investment more accessible.
Foreign market ETFs, domestic currency-based funds, emerging market ETFs, general foreign funds, and even ETFs track countries like Brazil and China. The world is your ETF.
3. Betting on Seasonal Trends
ETFs are an excellent tool to capitalize on seasonal trends. Let’s consider two well-known seasonal trends. The first one is called the sell in June and go away phenomenon. It refers to the fact that U.S. equities have historically underperformed over the six-month June-November period compared with the rest of the six months.
4. Swing Trading
As the name says, swing trades are trades that pursue to take benefit from big swings in stocks like currencies or commodities. Unlike day traders, they can take a few days to a few weeks to work out, which is seldom left open overnight.
5. Overbought and Oversold Trading
This type of strategy could be a tricky one, and it requires technical analysis. You should be able to figure out the periods when ETFs are oversold so that you can buy them and when they are overbought to sell.
Pros and Cons of ETF Trading
- ETF trading is one of the best ways to diversify your portfolio because of the additional benefits.
- It is a trading activity allowing you to trade diverse assets across multiple markets.
- ETFs are best for day trading because you can trade anytime during trading hours.
- You can apply leverage while trading ETFs, which brings you profits if you conduct a thorough market analysis.
- While ETF trading costs are low, expect management fees from most brokers.
- The ETF fluctuating/unstable prices can be complex at times.
- Using leverage in trading ETFs can cost you more than your investment when you lose.
ETF Trading is a great way to grow your income. With the above information, you know how it works, and we believe you will make the right decision to trade successfully. Note that most ETF brokers have trading tools, so do not hesitate to explore the research and learning tools they support you with.
With the strategies above, it’s easier to figure out when to open a position and when to close.