Profitable ETF Trading Strategies – Trading the Opening Gap

Ken Long asked:

There are literally hundreds of tactical trading books in the marketplace these days. Almost every one of them will discuss the authors favored strategy or strategies for trading the opening gap. The strategies are typically framed as a set of trading heuristic rules, of more or less complexity, and they’re backed up with assertions of excellent performance. When you set all the strategies side by side you realize that many of them are diametrically opposed to a different author’s favored strategy.

How can all of these authors be right about trading a period of time measured in minutes, where volatility is at its highest, and where false starts, false breakouts, gap closures, and reversion to the mean are so commonplace and confusing to the new trader?

Is the opening gap simply something that new trader should avoid until they have years of experience in hand? Or should a new trader just pick a strategy from a favorite author and try to make it work with small position size and move along until you find something that works? How long should you wait before the morning gap is over and you can start trading intraday on a more reliable basis?

These are not trivial questions. Intraday traders must struggle with these questions until they find the solution that is satisfactory to them.

My own research into gaps discovered some surprising truths. What I found was that the many different authors were occasionally right and occasionally wrong. I found that the truth about the gap and the best way to trade it varied in time on a regular basis.

I studied years worth of opening gaps of the market and found that there are times when the market reliably moves in the same direction as the opening gap, and times when the opening gap is reliably reversed, and many times when the market seems to be random with respect to the follow-through after the gap.

The one reliable correlation that I found was that the magnitude of the gap in either direction correlates to the magnitude of the follow-through in either direction. Simply stated, large gaps make for large follow-through’s. But, unfortunately, there is no predictive value on the direction of the gap and the subsequent move on a regular basis.

I also found that the truth of the market’s behavior at the gap changes in time periods measured in days and weeks. The truth is not persistent. Study of the gaps may point out moments when you can justify a directional bias but most of the time the correlation is so weak or nonexistent that there is no statistical edge.

What does this all mean?

I conclude that you should be very careful about it except in wisdom from even the most popular tactical trading authors and conduct your own research with respect to the gap in a way that makes sense for the type of trading that you propose to do. There is very little about the gap that may be safely and universally generalized for the average trader.

I have a set of Trading strategies that work for me and my style that took months to refine and only applying under strict conditions with limited opportunities. When those moments occur I am ready to trade according to my edge, but I also know how narrow the windows of opportunity really are.

If you must trade the gap, then be very careful.


Profitable ETF Trading Strategies – How Leadership Can Improve Your Trading Practice

Ken Long asked:

?I had an opportunity to conduct a two-hour interview with the executive director of the Center for Creative Leadership and explore their research into the field of emergent leadership.
It is their opinion that modern leadership for conditions of uncertainty take on a different form than are conventional notions of leaders and leadership.? Their insights have some powerful lessons for us to learn as traders as well.
The conventional view of leadership resides in the individual as leader. People usually think of leaders as charismatic people of action that lead us to success as a consequence of their personal qualities and individual excellence. We think that they see farther and deeper than other people and are able to articulate a vision of success which they can convince us is achievable if we will pull together.
This is often called the great man theory of leadership and is the subject of much debate.
Other schools of thought look for organizational structures that provide a framework for action in which individual leadership is less important provided that the organizational values and processes and resource levels support effective action in typical circumstances. In this theory of leadership, organizational excellence replaces individual excellence.
While it is true that organizational culture has a lot to say about success in the world, this view is dissatisfying in many dimensions because it seems to eliminate individual responsibility and initiative without addressing exactly how this effective organizational culture and structure should come about.
The Center for Creative Leadership approach considers leadership to be any emergent property of a situation that is a consequence of individual actions and relationships that create a condition for success that cannot be attributed to a single individual or policy but which seems to permeate successful organizations.
They have identified three persistent qualities which can be measured and which indicate that leadership is present. Each of these is a powerful concept which can be applied to our own trading.
The three concepts are: direction, alignment and commitment.
Direction consists of having a vision of a successful end state toward which our individual and collective actions may be applied in ways that make sense to all of us, even though the details may be uncertain.
Alignment means having all of the network components work individuals and teams in the organization, working together in harmony and rhythm, making way to get her like the coordinated members of the rolling team.
Commitment is indicated by what we are prepared to give up for the good of the team in pursuit of our final objective. It might include hardships that we will endure were sacrifices that we will make more investments of our time, energy and personal resources. It represents a measurable, meaningful and significant statement of purpose that will be interpreted by the team as a powerful force for good. It helps to bind us tightly together as a team.
As a trader you can examine your trading plan and yourself and your team in light of these three criteria to determine if leadership is present to help you achieve your objectives.
These three questions can be very powerful:
What is my direction? Am I aligned with my goal? Am I fully committed?


Forex Trading in ETF

Miodrag Trajkovic asked:

Forex trading nowadays has provided certain options for investors on where they can best make use of their investment capital. And for those who wish to add some variety to their investment portfolio, forex trading may provide another investment option to choose from aside from other trading instruments. One of the options available is investing in a Currency Exchange Traded Fund or ETF.

An ETF is an investment vehicle that is traded on primary exchanges, similar to stock and bond trading. For those who already have most of their portfolio invested in stocks and bonds, the currency ETF provides a varied option since it can benefit from some of the factors that may otherwise bring down prices on stock indexes, bonds, or commodities. Investing in currency ETF’s might be a great way to diversify one’s portfolio.

Currency ETF’s opens doors to investors for diversifying their portfolio. Not only will investors now be putting their money solely on the stock market. With currency ETF’s, investors now also have a means to take part in the forex market to take advantage of both worlds. What makes currency ETF’s a convenient choice for most stock investors is that ETF’s are bought and sold just like stock shares.

A currency ETF starts as a fund where firms that manage ETF’s buy and hold currencies. This fund composed of currencies is then being sold as shares to the public. ETF’s are normally valued at a hundred times the current exchange rate of the currency being held in the fund. The ETF shares are then traded just like stock shares.

Investing in currency ETF’s make it easier for first time investors to learn and understand the forex market. It is also being used by most investors as a means of placing their investments in varied investing instruments that is driven by different economic indicators. This way, an investment portfolio need not suffer losses in its entirety as what usually happens to a purely stock portfolio when the stock market goes through a bear cycle.

With a currency ETF, investors previously trading mostly on stocks may have a means to trade in the forex market. With the currency ETF’s being traded like stocks, investors no longer have to learn forex trading from scratch. Although the factors that may drive currency exchange rates differ from what drives stock prices up and down. Currency ETF’s make it more convenient and less risky for novice forex trading investors to try their hand on the currency trading market.