How ETF Trading Signals Work

Here is how our trading system works and how you can use our buy-and-sell trading
signals.

First, I want to reiterate that this is a 100% technical trading system. It is based
on trend-following principles and considers that all fundamentals, news, etc. are
already reflected in the price. Price being the only important parameter, buy or
sell signals are generated when the closing price meets a set of predefined
technical indicators.

How are our buy signals generated?

Our strategy works great on up trending (or down trending) ETFs, but not so great on
‘flat’ (no up or down trend) ETFs. This is why our software analyzes all US ETFs on
a daily basis, identifies those on an up trend, classifies them based on their
relative strengths compared to the S&P500 index, and issues a buy signal when one of
the top ETFs meets all of our predefined buy parameters.

If we have a cash position in our portfolio and the predefined general market
conditions are in ‘buy’ mode (basically when the overall market itself is in an up
or down trend), a buy signal will be sent to all our members.

If the general market isn’t in ‘buy’ mode (generally during flat markets), we will
stay in cash and wait for a new market trend before adding any new positions.

If all 3 portfolio positions are filled, the ETF will be added to our watch list.

How are our sell signals generated?

Basically, a sell signal is generated when the up trend is over (according to a
series of predefined parameters). A stop loss is also used to prevent us from large
losses (the only exception being in the rare event that a very large one-day loss
occurs as our system only works with the closing price).

How do you get the buy/sell signals?

As soon as a new buy or sell signal is generated, it is added to our ‘trading
alerts’ page and emailed to all our premium members. It is a simple and easy-to-use
signal like:

Buy (Sell) XYZ (ETF name) at market.

New signals are generally added and emailed to our members a few hours after the
market closes and are valid for the next trading day.

How does the portfolio work?

Our portfolio has 3 positions at any given time and, depending on the market
conditions, can be fully invested or 100% stayed in cash. Money management is a very
important parameter in our system and we will stay in cash if there is no ETF that
meets all our buy parameters. We usually get complaints from some of our paying
members when we are mostly in cash, but one should remember that investing is about
making money, not being invested at any price.

How do you use the ETFs on our watch list?

The watch list was added to accommodate members that want to invest in more than 3
ETFs at a time. ETFs added to the watch list meet all our buy parameters, but could
not be added to our portfolio because all 3 positions are filled. They are monitored
on a daily basis as well and dropped out when a sell signal is generated. However,
we do not track the returns or provide any statistics for the ETFs on the watch
list.

When you join, do you buy the ETFs we hold or wait for new signals?

This is probably the most frequent question we get and I do not really have a clear
answer to this. Basically, if you buy an ETF that was recommended a long time ago,
the odds are higher that it is near the end of its up trend. However, no one knows
what the market will do and it can still go up for months or, why not, years. I will
say if you are a conservative investor, wait for new signals – but if you are an
aggressive one, buy the ETFs we own at the time you join. Or use half of the capital
allocated to this strategy for the ETFs we already own and half for new signals. But
remember, when it comes to your money, the investment decision is 100% yours…

Comments

14 Responses to “How ETF Trading Signals Work”

  1. Gary Weingarden on September 2nd, 2009 2:09 pm

    If the overall market is in a downtrend. Does your system allow for positions in inverse ETFs that excel in Bear markets?

  2. admin on September 2nd, 2009 3:07 pm

    Gary, we will certainly recommend inverse ETFs if they will meet our buy parameters.

  3. John Kiriakatis on January 5th, 2010 12:36 am

    after we receive an email with a new buy and it is valid for the next trading day, do you recommend buying at the market open @ 9:30am est? OR do you wait until after the first hour and buy @ 10:30 or after as some call the first hour traders ‘amateur hour.’
    OR it doesn’t matter.

    pls advise,

    John Kiriakatis

  4. admin on January 5th, 2010 11:36 am

    John, all our buy and sell prices are market open prices and we recommend our subscribers to place their order at market open as well as this will allow them to get the same returns and is easy to manage (orders can basically be placed at any time before market open).

  5. David Toft on January 26th, 2010 9:26 am

    I just signed up and am confused about the stop/loss you mention because I didn’t see anything on the buy alerts.

    Is the stop/loss another alert you send or should I be placing a stop/loss when I buy, and if so, what percentage?

  6. admin on January 26th, 2010 10:35 am

    David, the stop loss prices are build on our system but we do not make them public as they are variable and change on a daily basis but we will send you a sell alert when when it’s time to sell any of the ETFs on our portfolio.

  7. toby lee on April 24th, 2010 6:42 pm

    do you also cover oversease ETFs or do you just focus on the US

  8. admin on April 24th, 2010 9:37 pm

    toby, we cover only US listed ETFs but you can easily find the equivalent ETF in the country you are interested in.

  9. Steve N. on April 25th, 2010 9:42 pm

    So, if I understand your Jan. 26th response above, you do not recommend a stop loss to your members. They just have to wait for your SELL ALERT to close the trade. Correct?

  10. admin on April 26th, 2010 9:35 am

    Steve, Yes, we send out a sell alert when it’s generated by our software.

  11. michael k ashmead on August 30th, 2010 8:43 pm

    How can I find the YTD portfolio return.

  12. admin on September 1st, 2010 3:45 pm

    Michael, closed trades and yearly returns are posted here: http://www.etftradingsignals.com/all-closed-traded/

  13. Tim McLeer on April 4th, 2011 6:43 pm

    My stops always seem to get hit. Or Iadjust the stop loss up and it seems to get hit always. I like your idea–just wait for a sell signal from your program using your stop loss.

  14. admin on April 5th, 2011 10:25 am

    Tim, if you have to use stops is better to use mental not hard stops.

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