Before stepping into any market, investors should take a moment to check their emotions at the door and utilize a sound investment strategy. Here, we follow an exchange traded fund trend-following strategy to help guide us through the ever-changing marketplace so that we aren’t making investments based on gut instinct or emotions.
ETF investors should always mind the trends. Specifically, investors should keep track of a potential investment’s 200-day moving average and look to where the fund is relative to the trend line. Anyone can take a look at a prospective ETF’s movement through the charts provided on our ETF Resume page. [Stock ETFs See Bullish Technical Signal]
We generally look for uptrends and back those trends with fundamental analysis. Over the medium- to long-term, the markets and individual securities will follow an identifiable trend. Generally, investors will want to be fully invested in equities when the market is above its long-term 200-day moving average trend line. [What a ‘Golden Cross’ Means for Stock ETFs]
However, ETF investors also need an exit strategy in place. If the ETF begins to fall below its 50-day moving average, investors should begin to take heed. If the investment falls below its 200-day moving average or dips more than 8% off its high, it is time to get out. [How to Navigate Uncertain Markets with an ETF Strategy]
By following a strict trend-following regiment, an investor can allow reason and logic to dictate investment options, instead of stubbornly holding onto investments that offer little more than sentimental value.
For more information on ETF trends, visit our trend following category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.