Monday, February 20, 2012

February 20, 2012- Exchange Traded Funds

ETF's are one of the most popular types of things to trade on the Stock Exchange. Exchange Traded Funds can be one of three things. It can either be something that tracks an index (SPY tracks the SP-500), it can track a commodity (GLD tracks gold) or it can be a combination of different individual stocks (QQQ for technology). They are highly liquid and the volume is in the millions of shares traded per day.

In addition to the 3 types of ETF's, ETF's can either be 1X, 2X or 3X the stocks or commodities they are tracking. Basically, if you wanted to invest in the QQQ-technology ETF, but wanted more risk and more reward, there is TYH. TYH is the 3X ETF for Technology. For every 1% QQQ goes up TYH generally goes up 3% (and vice versa). There are also ETF's that are bear ETF's, meaning that they go up when the market goes down. SDS is the 2X short ETF for the S&P 500 index.

Here is a list of my favorite ETF's, what they represent, and why I like trading them.

SPY- Tracks the SP-500 index. If you want to invest in a highly liquid fund representing the market this is the ETF for you. It doesn't take a lot of research since most the ETF tracks the S&P which is one of the most conservative things to invest in.

SH- S&P 500 bear ETF. If you are uneasy about shorting the SPY when there is a downtrend, buying the SH is the equivalent. For some accounts online, brokers will not allow you to short, to circumvent this issue, the bear ETF's are perfect. I have one account that I can sell short and buy on margin, and once account where all I can do is buy long.

QQQ- The triple Q is the technology ETF. The negative to this fund is that it holds A LOT of Apple stock, too much for a fund comprising a whole industry. The positive, on the other hand, is that it holds A LOT of Apple, which means it has generically gone up over the last 2 years. Short Term Trends are very easy to decipher/

GLD- Gold ETF that tracks the value of an ounce of gold. Gold is always a great investment, but it isn't highly liquid. This ETF solves the problem of liquidity issue.

AGQ- 2X Silver ETF. Very volatile, easier to trade intra-day because it has been known to gap-down or decrease rapidly. I like trading this when the ETF has either been increasing or decreasing dramatically and therefore a correction is coming. In the chart below, a price example is April 2011, when the stock increased by 100%, there lost all of the gain in 6 days.

TYH-3X technology bull ETF, for every 1% technology industry goes up this goes up approximately 3%. This is great if you want a lot of risk, or if you are sure using your technical analysis that the Technology market is in an uptrend. When the technology trend is in a sure uptrend, it is hard to beat the gains of TYH.

TYP- 3X technology bear ETF, for every 1% technology industry goes DOWN this goes UP 3%. Basically the same thing as TYH only when the market is in a downtrend this is a great stock to buy so you don't have to be short any stock.

SDS- 2X S&P 500 bear ETF, for every 1% S&P 500 goes down, this goes up 2%.

TZA- Small cap Bear ETF. Tracks a variety of small cap stocks and for every 1% they go down, this ETF increases 1%.

TNA- Small Cap Bull ETF.
BGU- Large Cap Bull ETF. Tracks large cap stocks.

BGZ- Large Cap Bear ETF

The Large & Small Cap ETF's are great diversifiers for any portfolio. They have different trends than the other ETF's and market though, so you must be extra careful with them.

There are many other ETF's, in fact, there are probably 5-10 different technology ETF's, each has a different "creator". There are the ETF's that start with "X", like XLF, XLV, and XLI, and also the Credit Suisse ETF's that start with "C". My suggestion is to find a group of ETF's you like, start researching them and tracking their patterns, and then start investing!

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