Exchange traded funds continue to increase in number and popularity, growing to one of the most commonly traded securities on the stock exchange as both institutional and the average retail investor gain greater access to broad or specialized market exposure. Yet many individuals are unfamiliar with ETFs’ inner workings. In this ongoing series, we hope to address your questions and help shed light on the investment vehicle. [What is an ETF? — Part 9: Protecting Your Trades]
All too often, we hear about how investors missed out on a market rally or held onto an investment a little too long. While we may all succumb to trading on our primal instincts, ETF investors may keep their emotions in check with a strict regiment or strategy.
The first rule of thumb is to never chase a hot market. Just because a specific asset or investment has performed, there is no guarantee that it will continue to produce the same returns.
If you have an ETF candidate in mind, you will next want to look at where the investment is trading in relation to its 200-day moving average. Potential investors may look for ETFs on our ETF Analyzer page or check an ETF’s information on our ETF Résumé page.
Specifically, we look for uptrends. If an ETF is moving above its 200-day trend lines, it is a strong long-term, bullish signal. [An ETF Trend-Following Plan for All Seasons]