Before investing your money in the stock market, it is important to know what are Exchange Traded Funds. These are a popular form of modern monetary investments that are bought and sold on the stock exchange. They are comprised of various assets such as stocks or shares that are commonly being traded on a daily basis. Usually, Exchange Traded Funds are priced at an equivalent rate to the assets that they consist of.It is common for all Exchange Traded Funds to track an index or a commodity. This may include such indexes as the NASDAQ 100 or FTSE 100, or specific commodities like steel or gold. Some ETFs are also linked to hedge funds.

One of the most popular characteristics of Exchange Traded Funds is the fact that they offer a potential revenue that is equal to the gains in the particular market on which they are traded. For example if the ETF is linked to the FTSE 100 and these stocks post a ten per cent rise in value then the ETF will also increase by the same amount, minus any administrative costs by the fund manager.

Exchange traded funds most often exist in two different forms. The first of these is what is known as a cash based ETF. This generally involves the purchasing of all the shares of a particular index. The second option, which is known as a swap based ETF, differs from the cash based form in as much that derivatives are used to generate the returns.

Exchange traded funds have been bought and sold in America since 1993, whereas in Europe they only became available in 1999. For most of this time they have been classed as index funds, though since 2008 the US Securities and Exchange Commission have also allowed them to be managed actively.

Nowadays, ETFs are one of the most popular forms of investments. This is because of their ability to be traded both during and after the stock market designated trading times. This aspect gives them the qualities of both Closed End Funds and also Mutual Funds.

It is generally believed that Exchange Traded Funds are a secure form of investment as they can be secured from a drop in market value by their ability to be traded easily on the open market. This makes them a safer choice for investors compared to other forms of investments like mutual funds. There are many financial organisations who offer services relating to Exchange Traded Funds.

1. You will find all successful traders had a mentor. That’s a reason for adopting a mentor who has proven success. If you can learn a system from a successful trader, that will give you a head start.

2. Remaining emotionally detached is essential to successful trading, and successful traders do just that. Once you have entered a trade, you need to ask yourself if you can hold position until the pre-planned exit strategy is met? It can be dangerous to watch your trading account too closely, because of the emotion of watching your account soar. His after market trading plan eliminates 99% of emotion.

3. Successful traders resist the temptation to make things happen. If you try to force the market and enter too early because “you know it’s going to go up” you will get hurt. The key is to be a follower, not a leader. Follow your system (if it’s a proven system) and don’t make things happen outside of it. Impulsive, trigger happy mouse clicking should be done on a demo account, not live with your money. Just don’t think when you get lucky a few times that it’s ok to “make things happen”. That is exactly why you should stick with the system you are using; deviate and die.

4. Successful trades are prepared. It is vital to not only have a trading plan, but stick to it whatever the market might be doing. You must learn how to plan every trade, simply and quickly. As an example, with the system used by BIG A, you need only trade for 5-10 minutes every trading night.

5. Traders who succeed usually expected to, and become rich at the same time. Are you able to imagine yourself rich? Successful traders have had this vision. Do not restrict yourself. The idea of prosperity should be within you before it can manifest outside. If not, your account may suffer as it reaches new heights due to a feeling you do not deserve riches. Thinking how to overcome any psychological barriers to success is imperative. That is something with which your mentor can help.

Big A actually has his own exchange traded funds trend trading course, in which he teaches his own system of day trading for exchange-traded funds.

ETFs are a group of stocks that trade on the stock exchanges as if they are one stock. Generally in the past they have tracked a particular index such as the Dow Jones Industrial Average or the NASDAQ-100. Recently, however, they are forming ETFs that have a particular characteristic in common: they invest in a particular region or sector of the market, or have a certain market capitalization.

There are many advantages of ETFs over open and closed mutual funds. They can have a low cost of obtaining since you are paying a commission just like when you purchase individual stocks. If you use a discount brokerage, you can buy for very little money. The ongoing maintenance fees for an ETF are also minimal compared to actively managed mutual funds, and in some cases lower than index mutual funds.

Because ETFs trade like stock they have liquidity. With a simple phone call you can buy or sell. ETF exchange traded funds are priced every 15 seconds and trade continually throughout the day. This is not like mutual funds because mutual funds are only bought and sold at the end of the day. Since the ETF will be held in a brokerage account, it is easily traded.

Tracking an index means less selling within the fund. This makes for a tax efficient fund. ETFs rarely declare a capital gain. You choose when to sell and, as a result, you determine when you pay the taxes.

Index and actively managed funds retain a portion of their investable assets in cash. This is used to pay someone who is selling their fund. Since ETFs trade like individual stocks on the open market there is no need to retain a portion in cash.

There is no room for style drift in an ETF. In a managed fund, they might say it’s a large cap fund, but in reality they might chase performance by investing in small or mid cap funds. ETFs are required to maintain a 99% correlation with the index or basket of stocks that it represents.

Regarding ETF trading strategies, because ETFs trade like individual stocks you have the additional features of stock. ETFs can be sold short or on margin. For buying and selling, they can have buy, limit and stop loss orders. Put and call options can be purchased and sold using ETFs.

There are some disadvantages to exchange traded funds as well. They are not an appropriate investment to use with dollar cost averaging. If you have to pay a $10.00 fee each month when you make that $50 or $100 investment it can be difficult to make up that fee.

With the explosion of ETFs you have to watch what the fund is using as its underlying stocks. Sometimes it can be such a narrow focus that you really are not achieving diversification.

Because trading can be easy, you can get sucked into risky strategies. If you take part in market timing or short term trading, it can result in big losses. Puts and calls, or buying on margin when buying and selling ETFs, is riskier than buying and holding.

Exchange traded funds are the right choice under certain circumstances. For your main holding, you can use a broad index ETF. This can be complemented with ETFs that are targeted to provide weighting in a sector, region or type of market capitalization. As always know what you are investing in and be sure that it fits in your portfolio.

Click here to see a trend following strategy that generated 48% return last year.

The systems that monitor trend following are pre programmed to exit if there is an unexpected downward turn to the trend.  The trader will wait and re-enter if the trend re-establishes itself.  The point of trend following is to follow the trend after it is established.

Price is the 1st rule of trend following.  Other indicators are not important, although they don’t seem to be entirely overlooked.  The second factor is the choice of how much to trade.  The timing is less vital than the amount of the trade.  Then there is the exit strategy.  When to get out if the trade is unprofitable or if the trade is profit-making.  Finally, you must set a stop loss for the maximum sufficient loss.

These traders use their software to test trades before investing.  The software can guage the risks against the potential benefits of the transaction.  The assorted factors relevant to the trade are programmed into the software and the trader makes his call based on the result of the test.

One difficulty with trend following is the impact that unanticipated events can have on the market.  Political upheavals, natural disasters and other events can effect the market in both negative and positive strategies.  When Hurricane Katrina cause massive damage to grease rigs and pipelines in New Orleans, the price of oil and petrol zoomed in the expectation of deficits.  Even though no severe shortages happened, stockholders and trend followers, in both the stockmarket and the commodities market, kept the price of oil raised for months after the event.   

By definition, all stock market investing is speculative.  Following trends is a specific method for taking advantage of highs and lows in the market and using them to your own advantage.  Unlike hot stocks, which involve holding stocks for extremely short periods, hours or days, trend following involves keeping stock for longer periods, though the basic principle is quite similar.  In trend following one might hold the stock for a week or a month depending on the trend. 

In the market there is no assured strategy for earning profits.  It’s a necessity to have a plan or you will certainly lose money.  Trend following should by one of several strategies you employ to maximise your gains and minimize your losses.

Learn how you can apply trend following to ETFs and generate great returns with low volatility.