Momentum ETFs (Trading Plan)

Momentum ETFs

Market Rotation Strategy

Overview:  This strategy is designed to rotate to the segments of the market with the best performance.    The strategy is a simple but highly effective that buys the best performing ETFs trading within 10% of their 52-week high.  This strategy focuses on a powerful concept:  buying stocks making new highs.  Because of their diversification, the price movement in ETFs is more predictable than individual stocks.  

     

Strategy	Outlook	Risk	Reward
Long Stock	Bullish	Price Paid	Unlimited

Step #1:  Identifying Stocks.  Use “FINVIZ.com” which will help you find quality stocks trading within 10% of their 52-week high.  Statistics have shown that stocks making new highs have a tendency of making even higher highs.  These are the stocks we all dream about.  Getting in and watching it go up.

Step #2:  Review Charts.  Determine trend on weekly chart first, then look for trades on the daily chart only in that direction.  When the weekly trend is up, it allows you to trade only from the long side.

Step #3:  Determine Position Size.  Develop a system for consistently allocating the same amount in every trade.  For example, you decide to invest $2,000 per trade, that’s what you invest every time.

ProShares Ultra Russell 2000 (UWM) $50.12

$2,000.00

÷

$50.12

=

Buy (40) shares

Step #4:  Target Price.  A predetermined profit target is the easiest method of taking profits off the table.  When you enter your trade, set a specific gain (20%-25%) that you seek and then take your money off the table after that gain has been achieved.

$50.12

x

1.20

=

$60.14

Step #5:  Stop-Loss.  This strategy allows investors to determine their loss limit in advance, preventing-emotional decision-making.  Set a stop-loss (10%-15%) below the price you paid will limit your loss. 

$50.12

x

0.90

=

$45.10

Step #6:  Trailing Stop.  Trailing stop orders are used for long stock positions to maximize and protect profits in rising markets and limit losses in falling markets.  With this order, you do not enter a specific activation price, but rather, you create a moving activation price by setting a stop parameter (ATR x 2).

$1.48

x

2.0

=

$2.96  (Stop Parameter)

If the price moves up, the activation price increases to “trail” the new value.  If the price drops, the activation price does not change.  When the price drops to an amount equal to or less than the previously recalculated activation price, the order is activated and becomes a “market order”.

$51.07 (Recent High)

-

$2.96

=

$48.11  (Activation Price)