When it comes to investing in exchange traded funds (ETFs), it’s essential you determine what factors you will use to set your stop/loss points. Some follow trend lines, others use historical indicators while others prefer to use fundamentals. We follow the 200-day moving averages of ETFs, which is one version of tracking trend lines.

However, to use an example from Gary Gordon of ETF Expert, let’s say you use the P/E ratio and you see small-caps are overvalued. One option to protect your portfolio and increase diversification would be to look to a "mega-cap" ETF, such as the Rydex Russell Top 50 ETF (XLG). To further protect yourself, if XLGs P/E passed your P/E threshold (maybe it goes from 15 to 18), you would sell it.

Again, no matter what investment strategy you use, make sure you follow through with it.

Read the disclosure, as Tom Lydon is a board member of Rydex Investments.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.