One thing you have probably noticed is that there is no end of systems, strategies, and methods that are available for ETF traders. Many of these strategies and systems are hybrids or clones of other systems that are effective and have been used for several years. Some traders will advocate an ETF trading system while other do not use any systems or strategies.
Michael Eckhardt and Richard Dennis wanted to answer the question of whether a person could learn ETF trading, and succeed, using a simple system. Their experiment, in’83 proved that anyone can learn to trade successfully if they follow the rules of a system and act on them accordingly.
The Turtle ETF trading system also showed that even though a system is simple. For instance, all systems have a Step 1, Step 2 approach, most people deviate from the system even when they are winning.
Trend following and vector rotation are also a big part of most ETF trading systems. When an effective system is used consistently it normally will show the expected gains. However, if a person is not inclined to follow the rules of the system the results will be variable and usually result in losses.
Since the study was done in ’83, there have been many hybrids of the Turtle ETF trading system introduced. As with any system, this one also had some flaws that were discovered over time. However, the people using this system saw average annual returns of up to 80%. Those were the people that followed the rules of the system carefully. The people who didn’t follow the rules of the system saw losses or no return.
When you choose a system there will be rules that you will need to combine with your selected strategy to make your trading more successful. The system and strategy combined will provide you with the knowledge you will need to enter and exit at the times that will provide the most gains.
Some systems will work great with a particular type of ETF. That same ETF trading system will not be effective with other types of ETF. When you are deciding on an ETF trading system, look for the systems that fit with the vectors and ETFs that you are trading in. This will help to pair the system with the most effective strategy for that vector.
The better you understand a system, the easier it is to set realistic goals. Setting buy and sell limits is the safety net for any system or strategy that is being used for the first time. Knowing the history of the ETF trading system will help to plan an exit strategy based on the trends of the sector that is being followed.
Traders and professional are an invaluable resource. Finding out what ETF trading system works well in a particular sector can save time and money. By discussing the different elements of a system it is possible to learn about, a prepare for, the flaws in that system. Finding the system that most closely matches your personal trading style will also help you to create a winning system and strategy when you begin trading.
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