3. Sector Rotation: By following the rotoation of industry sectors based on economic cycles, ETF can help investors protect and adapt accoding to current affairs. The business cycle is the pattern of changes with the GDP and include expansion, prosperity, contraction and recession. Investors who follow this strategy adjust their portfolio’s sector weight to align with the sectors that are most likely to perform best.
We prefer to use a trend-following strategy, using the 200-day moving average as a guide for when to be in and out of the markets.
4. Use a hedge: Hedges are particularly useful if an investor is facing a down market. To be effective, hedges need not make money, they must only limit risk. An expected future event or trend can be met head on if an investor uses a hedge and thus limit downside risk.
If another downturn hits, it is important to have an exit strategy in a down market. Our strategy notes that it’s time to get out if an ETF falls 8% off its high or falls below the 200 day-moving-average. This way losses are kept to a minimum.
You can watch for signs to get back into the market by keeping tabs on market trends and watching the 50-day moving average. There are other market indicators to watch for; some signs the market may have stabilized include the inventory of unsold homes falling, houses selling more quickly than they have in recent years, and prices starting to go up.