Using ETFs & Mutual Funds
You will have to do a lot of research while selecting yours stocks for swing trading. Why not piggyback on the research done by wealthy fund managers and large financial firms. Name of the game is to find stocks that are not popular but have a great swing trading potential. Easier said than done! How do you find such stocks? Here is a very simple strategy that you can use to choose the hottest stocks best for swing trading. When a large financial firm builds an ETF, the first step is always to choose an index of stocks that is expected to outperform the market. The premise of the piggyback strategy is to use the large dollar research of the major financial firms to come up with new and fresh swing trading ideas.
ETFs are doing a roaring business these days. There are thousands of ETFs in the market now. New ETFs also get introduced in the market. ETFs have caught the imagination of the investing public. No doubt ETF investment is better than investing in a single stock. Large financial firms spend millions to choose the index on which they will base their ETF. The ETF is then based on this index of stocks. The price of the ETF then changes as the basket of stocks within the index moves. Why not piggyback on that research and save yourself a few millions? Cool, huh!
So what is this ETF piggyback strategy all about? How do you implement this ETF piggyback strategy? Have you been investing in ETFs before? No! Then you need to do some research to find the best performing ETFs. Your first step should be to analyze ETFs. You need to make a list of ETFs that have outperformed in the last 3 to 6 months. This will give you an idea where the big money is flowing and which ETFs have buying momentum behind them.
Mutual funds are supposed to be a safe investment. You can also piggyback mutual funds while picking stocks for your swing trading ideas. Now ETF piggyback strategy is still the best keeping in view the fact that only 20% of the mutual funds beat the passive benchmark over the long term. You can ride on the coat tails of fund managers who fall into this 20% category. However, ETFs are better than mutual funds as investment vehicles and in recent years have become highly popular with the investing public so stick with ETFs. After making your list of top 20, narrow it down to the five top performers and choose a few areas worth trading. Choose the best performing ETF in your opinion to begin with. Now you need to analyze the top ten holdings of that ETF.
Etfconnect.com is a great resource for information on ETFs and closed end funds. What makes this trading strategy great is that it often generates fresh ideas for swing traders. With thousands of potential stocks to choose from, the piggyback trading strategy allows you as a swing trader to choose stocks that have a buying momentum behind them.
Now another advantage of this piggyback strategy is that it can identify stocks that may not be household names to the average trader. ETFs can be utilized to find stocks for swing trading ideas that are based outside the US.
You will have a lot of option in choosing the right ETF for your investment. There are thousands of ETFs in the market now. Some are country specific, some are industry specific and some are market specific. The way to do that is to use the ETF piggyback strategy with either single country ETFs or regional ETFs. The single country ETFs invests 100% of their assets in one country. A good example can be the iShares MSCI Mexico ETF (EWW), an ETF that invests only in companies headquartered in Mexico.
You can choose industry specific as well as market specific ETFs as well. Country specific ETFs and region specific ETFs have been just used as an example to illustrate how to hedge your risk. Hedging your risk is what a good investment strategy is all about. Instead of putting all your eggs in one basket, you should try to diversify your investment. A regional ETF covers several countries concentrated in a region. The iShares S&P Latin America 40 ETF (ILF) invests in Brazil, Mexico and Chile. So if you want to find international stocks for your swing trading strategy than you should begin by picking the region or the specific country.
You must be thinking why you need to think outside of US Stocks. The traders who refuse to consider international stocks only hurt themselves because with the US in the mature business cycle, the real growth and volatility that you need as a swing trader can only come from international stocks. In addition to volatility that you need as a swing trader, international stocks also give you the ability to create some hedging strategies in combining US and non US Stocks into a pair trade.
Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account!
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