Our strategy is the 200-day moving average; when a position is above the line, it’s a buy signal. When a position dips below, it’s a sell signal. By having a firm stop-loss point, you put a cap on your losses instead of riding a position to the floor in hopes that it will “come back.” (Ten ways to become a better investor).

ETFs are an ideal tool for this strategy, too: the fees are more reasonable, you can trade all day like a stock, there are no early redemption fees and you have total transparency.

The ETF Trend Following Playbook explains in more detail how the strategy works.

For more stories about trend following, visit our trend following category.

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