Know When to Get Out of a Hot ETF
March 3rd at 8:33am by Tom Lydon
Jen Ryan of Dow Jones Newswires wrote an article on using a disciplined exit strategy when investing in exchange-traded funds. We spoke to her about the 200-day moving average.
"Lydon says he’ll keep a watchful eye on the 50-day moving average, but if the ETF moves below the 200-day average the believes it’s time to sell. He argues that at 8% stop-loss … allows a comfortable amount of give-back.
A shorter term stop-loss, such as 5%, could be too low since markets often have a 3% to 5% correction before they move on and hit new highs, he says.
Take Japan for instance. Over past three years the iShares MSCI Japan Index Fund (EWJ) … has risen more than 27%, according to Morningstar.com. Recently, though, the ETF dropped about 6% from its highs and if it were to go below 8% Lydon says he’s prepared to sell."
