honest commentary is applaudable.... I think I'll look into your website and subscription.... also, your answers were absolutely correct, these vehichle are NOT useful for scalping and so forth. Holding for 5 hrs or most parts of the day is appropriate, with an occasional scalp or two, just to keep the volume numbers up, you know....
Deron, I fully agree with you in that the stock price will get adjusted on the ex-dividend date, so that the ETF basket of stocks will be priced correctly too. However, what I mean is that as the owner of an ETF share, you will be eligible to actually receive these dividends. As an ETF shareholder, you own shares in the trust, and the trust itself is invested in the basket of shares (through creation), so when a company pays dividends, they will go to the trust. The ETF shareholder is the beneficial owner of these dividends, but some ETFs will use parts of the dividends received as their expense fees. From what I know, some types of ETFs, the HOLDRs for example, will pay out any dividend from a component stock right away (petty much as soon as they receive it), so here you won't have to worry about that cash plug component (which is representing dividends received by the trust) when pricing the ETF. Other ETFs however, I believe the SPIDRs for example, will accumulate dividends received, and only periodically pay them out to ETF shareholders. In this case, the ETF will be priced as the basket of stocks plus the accumulated dividends (minus expense fees, if applicable). The cash plug has also significance when there are takeover deals. For example, when the AMGN/IMNX deal went through, IMNX owners were given some number of AMGN shares plus some amount of cash, BBH had a special dividend of $1.85. That was in July (see pdf attachment for reference). Those special dividend are not really the norm though, I guess. Anyway, the dividend part - if there at all - is only a small fraction of what comprises the value of an ETF, and if you're not really in the business of scalping ETFs all day, they are not really that important. If you really would want to know, it might be worth having a closer look at some of the issuers' prospectuses to get more accurate information on how dividends are handled for a particular ETF. Your posts are excellent, thank you, Deron, for this invaluable thread on ET. maglia rosa
Yesterday was another roller coaster ride in the market, but we managed it well by watching the key resistance/support levels in the indices and only making trades when either the S&P or Nasdaq futures violated those levels. As such, we avoided much of the indecision in the markets and only traded the clear moves that offered a high-probability of profit with a low potential risk. Remember that the most profitable traders are typically out of the market more than they are in the market. Since we were short coming into yesterday morning, we lowered our stop in the overnight SPY position to just over the high of the upper channel of the downtrend from the highs of the selloff that started on Monday at 2 pm. This positioned us to realize more profits if the S&P collapsed on the open, but also caused us to lock in over a point of profit in the event the S&P reversed, which it did in the late morning session. Take a look at how we determined where to set our stop on the overnight position of SPY yesterday: Notice the long green candle where SPY initially broke the upper channel of the downtrend, which is where we took profits on our short as well. If you look at the same chart of both DIA and SMH, you will see that we took our profits on those overnight shorts at the exact same point, which is when they both broke the upper channel of the downtrend from the previous day. After covering our overnight short positions, we watched the market for several hours until we saw just the right opportunity present itself in the afternoon session. This occurred when SPY failed the breakout to hold the breakout above the upper channel of the secondary downtrend line from Monday morning's highs and dropped back down below the lower channel of the uptrend that was forming intraday. This signalled a low-risk short opportunity in SPY, which is where we re-entered it short. We subsequently covered when the SPY tested the lows of the morning session, forming a double bottom. Take a look: The Nasdaq (QQQ) and Semiconductor index (SMH) both showed relative weakness to the S&P (SPY), which is evidenced by the fact that the intraday day high on the Nasdaq was up to the low of the previous day, whereas the S&P rallied beyond the previous day's low. That is why we shorted QQQ and SMH more aggressively than SPY. DIA was even stronger than SPY in the afternoon, which is why we did not short that index on the afternoon re-entry. Overall, it was a good trading day and every trade we entered and closed yesterday was profitable. Using trendlines such as these to determine where to take profits and when to enter trades is just fundamental technical analysis, which is what we focus on. We've found that the more simple and focused we keep our trading, the more profitable we are. Going into today, it looks like head and shoulders city out there! If you did your homework, you probably noticed there are now several head and shoulders patterns all coming together at once with the S&P futures (and SPY). If these follow through to the downside, we could see some sharp selling in the index. On the other hand, if these head and shoulders patterns fail, meaning the market rallies back above the heads, then we would expect an equally strong rally. As we have been talking about for the past several days, SPY is in the process of completing the right shoulder of a h&s pattern on the daily chart . However, there are also two additional h&s patterns forming on a shorter time frame. One of them is forming over the past four days and the other one formed exclusively during yesterday and closed at the right shoulder. First, take a look at the h&s that formed intraday yesterday (using a 5-minute chart of SPY): And finally, take a look at a 4-day, 30-minute chart of SPY, which shows a larger head and shoulders forming: As you can see, that makes a total of three head and shoulders patterns that the S&P is currently in the process of completing. The last chart above clearly shows that a break of the neckline will probably result in a significant selloff in SPY. Additionally, SPY closed just a few cents above its 20-day moving average, which is an important support level. By the way, have you noticed how much better technical analysis works with the index ETFs such as SPY compared to individual stocks? That's one of the reasons why our profits have increased since we began trading ETFs. While SPY has the clearest head and shoulders pattern setting up, the Nasdaq and Dow charts don't look much better. Although we never want to get too much of an opinion on what the market is going to do, we feel that a breakdown in the S&P is likely, especially once the neckline is broken over the past four days (around 89.80), and subsequently on the daily chart around 87.50. If, however, those levels are not broken, we will probably take a "wait and see" stance to trading because there is no technical reason to be long SPY right now either.
deron- cool thread. nice work. (subscribing to thread) uptik can one subscribe to a thread without posting on it?
Thanks Uptik, Glad you like the thread. I generally post new material on this thread about once or twice a week. I think that you can indeed subscribe without posting.
From a purely technical point of view, yesterday's breakout in the major indices was very important because it confirmed the shift of the balance of power to the side of the bulls (at least in the short term). All three major indices we follow (the Dow, Nasdaq, and S&P) broke out of their trading ranges that they have been stuck in for more than three weeks. Generally speaking, this lowers the risk of entering new long positions because the trading range that we broke out of yesterday should now act as support if the market comes back down. We certainly feel more comfortable being long now than we did during the rally two days ago because the market was still in a trading range at that point. All the major market internals were strong yesterday including a 2:1 advance/decline ratio, positive market breadth, and strong volume. In our opinion, the most important factor about yesterday's breakout was the high volume. The NYSE traded just over 2 billion shares and the Nasdaq traded just over 2.4 billion shares, which marked the highest volume day in the Nasdaq since July 24. This strong volume was expected because if the market broke out, every technical trader in the world was watching and waiting to buy a breakout of the key 1426 level in the COMPX that we discussed yesterday. The breakout in the markets yesterday, especially the Nasdaq, triggered a lot of buy orders. By the way, take a look at how we chart the total volume in the market because it makes it easy to compare volume of any given day. This is a daily chart of the Nasdaq volume: We would be surprised if the rally of the past two days continues into today without some kind of correction first. This means that trading today is likely to be choppy, which is not conducive to our style of trading. Keep in mind that the Nasdaq futures have rallied over 8% in the past two days (nearly 100 points), while the S&P futures have rallied over 5% during the same period, all without any type of correction. Remember that technical corrections of strong rallies take place in one of two ways -- either by price or time. A correction by price is simply a retracement (pullback) off of the highs down to a support level before going back up and continuing the uptrend. Price corrections typically bring market prices back down to key moving averages which offer price support and a lower-risk point of entry on the long side. On the other hand, a correction by time means that rather than the price of the market selling off to meet its moving averages below, the market trades sideways in a relatively tight trading range for a period of time which subsequently causes the moving averages to rise up to the current price of the market without any type of price correction. The longer that the price consolidates near the highs, the more of a solid base the market is building from which to break out of and go higher. Of the two types of correction, a correction by time is more bullish than a correction by price because it indicates that there are very few bulls taking profits and that the market is only taking a break due to a temporary lack of buyers. Overall, we certainly view yesterday's breakout as a technically bullish signal which will probably propel the Nasdaq composite up to its 200-day moving average, which is just over 1500 (around $28 for QQQ). The next major resistance level on the S&P futures is the high of August 22, around 965 ($97 for SPY). For the Dow, the next resistance point is just over 9000 ($91 for DIA). Given the current positive market sentiment and seasonal buying in December, we would not be surprised to see these indices hit their respective resistance levels by the end of the year. However, once the seasonal hoopla dies down and the reality of unchanged fundamentals sets in, this trader thinks that the market, especially the Dow, is headed back down to test the October lows. But, this could easily take another six months to a year before we see that happen (look for our long-term analysis of the Dow in a posting I will make here next week). In the meantime, we'll continue to trade the short term trends, whichever way they may go.
While doing extensive ETF research last week, I came across some interesting charts of DIAMONDS (DIA), the tracking stock for the Dow Jones Industrial Average. As short-term traders, we rarely study charts of long-term, multi-year duration because we focus on trading short-term moves consisting of hours or days. While our style is not to trade long-term moves in ETFs, it is very helpful to have an idea of what the "big picture" is with any given index or ETF. Even though we usually do not trade patterns we see on weekly or monthly charts, knowing the greater context of what is happening in the broad market helps us to have a better, more accurate perspective of how to approach our intraday and multi-day "swing" trades. Because I was intrigued by what I discovered while researching some longer time frames of DIA, I wanted to share my observations and analysis with you. I do not intend this article to be a bullish nor bearish portrayal of the Dow, but rather a purely technical observation and analysis of various timeframes. Let's begin with looking at some raw statistics about DIA (and correspondingly the Dow Jones Industrial Average) since the all-time highs that were set in September of 2000. DIA is presently down 22% off its all-time high, after being down as much as 36% off the highs in the middle of last month (October 2002). However, there have been many strong selloffs and subsequent bear-market rallies during the past two years. Since the highs of Sept. 2000, my research shows there have been a total of six rallies of more than 10% each in DIA (and the Dow). Here are the time periods and the approximate percentages of each of those rallies in DIA: Approx. % of rally Date range of rally 13.6% Oct. to Nov. 2000 24.8% March to May 2001 29.5% Sept. 2001 to Jan. 2002 11.1% Feb. 2002 to March 2002 20.9% July 2002 to Aug. 2002 23.6% Oct. 2002 to present Based purely on the historical rallies of the past two years, the current rally in DIA would likely be nearing an end based on the average and maximum rally percentage of each bounce in DIA. Next, we will look at the widely-followed daily chart of the Dow. Below is a one-year daily chart of DIA, which closely mirrors the Dow at an approximate price ratio of 1:100. Therefore, simply multiply the price of DIA times 100 to calculate an approximate price match of the Dow Jones Industrial Average: In the short-term, it looks quite possible that DIA will rally up to its next resistance point of 91, at which point we are confident the Dow will see a big retracement (if not sooner). The 91 level on DIA is a significant resistance point for several reasons. First of all, it matches the most recent price resistance on the daily chart, which was set on August 22 and 23 of this year. However, more significant than price resistance is the 200-day moving average, which is still descending and is currently just over 92. If DIA rallies to 91, it would probably take several weeks, thereby causing the 200-day moving average to descend lower, probably very close to 91. This correlates to the price resistance from those highs at the end of August. Another interesting thing I noticed was that 91 perfectly correlates to a 50% Fibonacci retracement from the highs of March 19, 2002 to July 24, 2002. The 50% retracement level typically serves as an important and difficult resistance level for indexes to rally through. When indexes that are in a downtrend rally through the 50% retracement level, it often signals a trend reversal corresponding to the timeframe you are applying. Finally, depending on how long it takes DIA to reach the 91 level (assuming it does in the first place), it will also run into resistance of the upper channel of the downtrend from the highs of March 19. If DIA rallies to 91 quickly, this trendline will be slightly higher than 91. However, if it takes DIA several months to reach 91, the trendline will simultaneously be around the 91 level. Either way, the point is that there are at least four different reasons why there is significant overhead resistance around the 91 level that would take some major buying pressure to break through, although it is certainly possible. If DIA has enough strength to get through its resistance at 91, a quick look at the weekly chart shows a longer-term, more important trendline that DIA would have to rally through. Take a look at the weekly chart of DIA: Again, the 200-period moving average is closely lined up with the upper channel resistance of the downtrend from the highs of May 2001. If DIA rallies that high, the 200-week moving average will probably be lined up precisely with the upper channel of the primary downtrend line. Therefore, if DIA breaks above 91, it will run into big resistance just over 100 (10,000 on the Dow). Finally, let's take a look at the monthly chart of the Dow, which presents a very sobering snapshot of reality. Since the DIA ETF is only a few years old, we used a chart of the Dow Jones Industrial Average instead to get a long-term monthly view of the past 20 years. I used a line chart instead of candlesticks because it is easier to see the trend over that long duration. Check out this chart that goes back exactly 20 years to the day: When I first looked at this 20-year chart, the first thing that grabbed my attention is how huge of a rally the Dow has had over the past 20 years. Despite the 22% selloff from the highs of September 2000, the Dow is still up a whopping 885% since 1982. After studying the huge gains of the past 20 years and looking at some trendlines and indicators, you can probably guess the next thing that went through my head. . .the Dow has a really good shot of dropping another 3000 points or more before finding solid price support of the primary uptrend line around 5200 and the 200-month moving average around 5500. Now, before you start to panic and bury all your cash in the back yard because you fear the Dow dropping to 5000, be aware of two things: 1.) The Dow could easily take another 3 - 5 years before ever seeing the 5000 - 6000 price level. Remember that we are looking at a 20 year chart here. Unless you have a very long-term horizon, shorting the Dow and expecting to make 40% profits is not likely. 2.) The Dow could also trade sideways at current prices for the next 10 years or so without ever dropping below its support at 7500. This would cause the 200-month moving average and primary trendline to rise up and provide support through a correction by time, rather than price. Even though the longer-term trends are not tradeable with our particular style of trading, I strongly believe that having an idea of what indexes look like on multiple time frames greatly improves your profitability in short-term trading because it gives you a healthy perspective of "the big picture." Also, remember that the longer time the time frame of a trend, the more significant that trend is. Therefore, support and resistance levels mean more on a weekly chart than a daily chart, they mean more on a monthly chart than a weekly chart, etc. If you ever entered a position that just did not go where you expected it to go, yet you did not see any resistance on the daily chart, chances are good that there was an important trendline or support/resistance level that you overlooked on a longer-term chart. My hope is that you will learn from my analysis of DIA as a sample of the types of research you should be doing on the major indexes each week because you just never know what surprises you will come across when studying the longer-term charts.
Below is commentary that was sent out to our subscribers before the market opened today. This is our opinion of the technical state of the three big ETFs we trade (SPY, DIA, and QQQ): Last week was one of the more challenging trading weeks we have seen in quite a while, primarily due to very light volume and the associated lack of broad market direction. The total volume on both the NYSE and Nasdaq last week was the lightest we have seen since the middle of September (with the exception of the shortened Thanksgiving week). Given that fact, it's really not surprising that conditions were so choppy and filled with indecision. We saw much of the same pattern every day last week that consisted of a counter-gap move out of the open, a whipsaw in the other direction, and then a narrow, listless trading range for the rest of the day. While it was the kind of week that scalpers often thrive in, it was not ideal for "trend traders" such as ourselves. Nevertheless, we played it conservatively, protected capital, and even made a little profit for the week. By the way, notice how the rally in DIA stopped at 91, just as we analyzed in the previous post. There was simply too much resistance for it to get through. Two of the most important indicators that we discussed throughout all of last week are the 20 and 50-day moving averages. The major market indices began last week trapped in the middle of those two moving averages, slowly attempted to rally up to their 20-day moving averages, and got whacked to close right on their 50-day moving averages. In fact, it is uncanny how the 50-day moving average provided price support on Friday, almost to the penny with the major index ETFs. Coming into Friday, the 50-day moving average on SPY (the S&P 500 Index SPYDER) was at 89.36. Within the first forty-five minutes of trading, SPY sold off hard, broke price support of the prior several days and bounced off a low of. . . you guessed it. . . 89.36! This bounce off the 50-day MA caused a bounce back up to the high of the day that peaked out around 1:00 pm. before the market began selling off again into the close. By the time 4:00 pm EST rolled around, SPY was back down to the low of the day and had an official closing price of 89.34, within two cents of its 50-day MA. Pretty amazing, isn't it? Looking at a daily chart of SPY, you will also notice convergence of the 100-day moving average, just a few cents below the 50-day: It was not only the S&P 500 that had a precision bounce off the 50-day MA. Both DIA (the Dow Jones Industrial Average) and QQQ (the Nasdaq 100 Index) traded in a very similar pattern on Friday. The 50-day MA on DIA was 84.30, the low of the morning selloff was 84.40, and the closing price of DIA was 84.37. The 50-day MA on QQQ was 24.94, the low of the morning selloff was 25.10, and the closing price of QQQ was 25.04. In addition to the 50-day MAs, there are two other important technical levels that should act as support going into this week. First, notice the 20-WEEK moving averages for the major indices is near current price levels. For SPY, the 20-week MA is at 89.41, only five cents higher than the 50-day MA. The 20-week MA for DIA is 84.29 (the same as the 50-day MA), while the 20-week MA for QQQ is at 24.12 (still below current prices). Here is a weekly chart of SPY that illustrates the 20-week MA: In addition to the 20-week and 50-day MAs, many of the major indices are now approaching their 0.382 Fibonacci retracement levels off the entire rally from the lows of October 10 to the highs of December 2. Typically, this is the level that a healthy uptrend will retrace to before turning back up and going higher again. The 0.382 retracement for each of the major index ETFs is as follows: SPY 88.85, DIA 83.57, QQQ 25.34. Both SPY and DIA are above their 0.382 levels, while QQQ actually closed below it on Friday. If the 50-day and 20-week moving averages do not hold, expect the 0.382 Fibo levels to provide price support. Below that, the 0.50 Fibo level becomes even more important (click here for a primer on Fibonacci). Whew! That's a lot of price levels to digest, but the point is that all the three indices we follow each have major, multiple support levels at or near current price levels. Despite the fact that the market closed at its lows of the week on Friday, we would be surprised if the market moves much lower without first seeing a significant attempt at a rally, especially when combined with the historical "Santa Claus rally" the market usually sees the week before Christmas. However, like the disclaimer says, "past performances do not necessarily indicate future results." So, don't get it too etched in your brain that Santa will save the market because there continues to be a lot of war concerns and increased tensions from all over the world. As each day grinds on, we think the market will start to think in terms of not "if" there will be a war, but "when" there will be one. This could actually be interpreted as a positive for the market because war will begin to be priced into the market. We feel the best way to play this week is conservatively. Volume is again likely to be light, which would continue to provide us with choppy conditions. We also feel it is a bad risk to be heavily exposed overnight right now, so we will probably focus on intraday trades this week to reduce risk exposure. While we feel pretty confident the market will bounce this week, it may not happen today. In fact, if the indices fail to bounce off the 20-week and 50-day MAs, we could really see panic start to set in. But, assuming a rally does come, the big question will be how high will the rally take us? We'll take it one day at a time.
The combination of the 50-day MA, the 20-week MA, and the 0.382 Fibonacci retracement level all acted in concert to provide price support on the major indices yesterday that spurred a solidly uptrending day that began after the initial gap up and lasted all the way into the close. Even though we anticipated a rally based on the technical levels we discussed yesterday, we needed to see some type of price confirmation before going long. That confirmation came in the form of a break of resistance of the upper channel of the downtrend from the highs of December 2. Take a look: Once SPY broke the resistance point labeled above, we went long with a stop just below the breakout point. When SPY confirmed the breakout by staying above Friday's highs (also the 20-MA on the 60-minute chart), we added to the position and began trailing a stop higher throughout the day. Through the use of trailing stops, we sold our position near yesterday's highs without exposing ourselves to the risk of giving our profits back if the market reversed. We also bought DIA (per discussion in our ETF Real-Time Room) when it broke resistance yesterday and managed it the same way as SPY. We netted over two points of profit between those two trades yesterday, including a re-entry we made on a pullback in the afternoon. While the rally was indeed solid yesterday, one thing that continues to make me cautious is the lack of volume. Strangely, yesterday's volume in both the NYSE and Nasdaq was identical to the lackluster average daily volume we saw in last week's choppy sessions. Volume on the NYSE was only 1.22 billion shares, about 15% shy of the 50-day moving average which is at 1.45 billion shares. Considering the wide range of the rally yesterday, we expected to see an increase over last week's volume, which would confirm the return of buyers to the market. However, the light volume indicates there was simply a lack of sellers rather than an abundance of buyers. These are the worst kind of rallies because they can reverse just as quickly as they went up. Since volume typically leads price, a broad market rally is rarely sustained without seeing a corresponding increase in volume. Therefore, we need to remain skeptical of a continuing "Santa Claus" rally unless we see volume pick up. The key pivot level to watch on SPY and DIA today is the 200-MA on the 60 minute chart, which also corresponds with the highs of December 11. SPY closed just above that level yesterday, while DIA closed right on it. That level will act as support or resistance today (depending on whether the indices open above or below it). The 200-MA on the 60 min. chart for SPY is 91.45 (909 for S&P futures) and is 86.45 for DIA (8623 for the Dow). Unlike SPY and DIA, QQQ closed well below its 200-MA on the 60-minute due to relative weakness yesterday. Notice how DIA closed right at resistance of its 200-MA: If we get above yesterday's highs in SPY and DIA (and hence the 200-MA on the 60 min.), the 20-day moving averages just overhead are likely to act as significant resistance (especially without an increase in volume). The 20-day MA is at 91.99 for SPY (913.65 for the S&P Futures) and is at 86.94 for DIA (8671 for the Dow). QQQ is well below its 20-day MA, which is at 26.61. While a rally above the 20-day MA in the S&P would certainly be bullish, it also would begin to form the right shoulder of a head and shoulders pattern on the daily chart. However, we won't discuss the head and shoulders pattern until we get a little more confirmation. Be aware there are six different economic reports scheduled to be released before the open today. Two of the most important numbers, CPI and Housing Starts, could both be market movers. That is why we went to cash overnight despite the market's strong closing prices. While we remain optimistic about the probability of a continuing rally today, we are also cautious because of the light volume. As always, we'll let the market settle going into the 10 am reversal period and see if there is any conviction in holding above yesterday's highs. If so, we'll probably take some long positions. Otherwise, cash is probably the best bet.
Below is a reprint from our weekly newsletter regarding how we manage and allocate size for our ETF trading. It is unedited, so please disregard any reference to our services and just read the educational part of the article. One of the most important things I have learned in all my years of trading experience is that consistently profitable traders are not necessarily correct with their individual stock selections an extraordinarily high percentage of the time (as some people might assume). Instead, most of them are profitable because they have learned a deep respect for managing risk and have properly implemented a concrete system for effectively managing their risk exposure every time they enter a trade. While I could write an entire book on the many facets of managing risk, I want to touch on the subject of how we determine our exact position size for each trade we enter because we feel that knowing how to properly differentiate share size based on the individual security is the first step to a solid risk management program. Although we obviously have losing days during the course of any given week, our overall trading results have been profitable for the past twelve consecutive weeks and five consecutive months based on all the trades reported in The Wagner Daily and our new ETF Real-Time Room. These positive results are not the result of being right every time we make a trade, but rather because we have learned to properly manage risk by incorporating a predetermined position size for each trade we enter. I would like to show you the plan we use that dictates our position size for every trade. Our standard position size is derived from our trading plan that clearly dictates a specific and unique position size for each group of ETFs. Among other things, our position size is obviously based on the size of our trading account. However, since every trader has a different amount of trading capital or an amount they are willing to use as risk capital, the actual number of shares we trade for each position is not relevant to anyone else who would have a larger or smaller account. So, instead of telling you how many shares we personally trade, let's assume a maximum capital exposure of $20,000 per trade because we have found this to be an average amount of capital that our subscribers are working with for each trade they put on. Obviously, you can do the math and adjust the share size according to the size of your own trading account. Below is a table that illustrates the ETFs that we commonly trade, as well as the ratio we use for determining how many shares of each ETF we should enter. The share size listed below constitutes a standard position size based on our model of no more than $20,000 capital exposure per trade. An explanation of each column can be found below the table: Symbol - This is the ticker symbol of the ETF; self-explanatory. Description - This is a description of the security, including the family that the ETF belongs to. The families of ETFs we trade are SPYDERS, HOLDRS, iShares, and tracking stocks such as QQQ. Shares - This is the actual number of shares that constitutes a standard position size for each associated ETF. Again, this quantity is based on a trader who does not want to expose more than $20,000 in capital per trade. Simply adjust this amount accordingly if your account is larger or smaller than this figure. Because we often discuss trades in terms of buying or selling a "HALF" position, that quantity would be found by simply taking the specified share amount and dividing it in half. If, on the other hand, we took a "DOUBLE" position, that would represent twice the amount of shares specified above. Under normal market conditions, we typically enter standard position sizes, but often use "HALF" positions when conditions are not ideal and to leg in to or out of a trade. A "DOUBLE" position would be entered if we felt particularly strongly about a trade and market conditions were exceptionally good. As a side note, those of you with smaller trading accounts would greatly benefit from a brokerage firm who charges per share instead of per trade. Our brokerage firm charges less than 2 cents per share, which really saves you a lot of money on a 100-share trade. Drop us an email if you would like details on the firm we trade through. Multiplier - This figure is important because it tells you how we adjust our position size of each ETF. Because the realm of securities we trade is limited to a handful of ETFs, the multiplier is a ratio that compares the position size of each individual ETF. The multiplier ratio is based on several factors including the volatility of the ETF, its average daily range, and its market price. Be aware that the dollar amount of your trading account is irrelevant with regard to the multiplier because the same ratios are used regardless of the size of your account. The number that is listed in the multiplier column uses SPY as our benchmark, meaning that the standard position size of 200 shares is the default. So, to calculate the number of shares for each ETF, we simply multiply the 200 share default times the multiplier ratio for each ETF. For example, a standard position size of QQQ is 400 shares because it has a multiplier ratio of 2. This is calculated by taking 200 shares (the SPY default) and multiplying by 2 (the QQQ multiplier ratio). If you have a larger account and your standard position size of SPY is 400 shares, then your standard position size of QQQ would correspondingly become 800 shares. On any given day, we are typically in one to two simultaneous positions. At times when the market is in a tight or choppy range, we may not be in any positions. However, the maximum number of positions we will ever be in at one time is four because it is difficult for most traders to efficiently manage more than four simultaneous positions without assistance. Therefore, we don't recommend that traders use more than 25% of their capital on any one position (unless they use margin, which can be dangerous). We feel it is better for a trader to have less shares of any one position but be able to enter several positions rather than for the trader to put their proverbial eggs in one basket. Based on a maximum of four simultaneous positions, the most capital any trader following our program will ever simultaneously have in action is equal to four times the maximum risk capital of any one position. Based on the sample model above, this represents a maximum exposure of $72,000 at any given time, although we are usually in only one or two simultaneous trades a majority of the time. The table you reviewed earlier in this article represents the entire realm of ETFs that we presently trade. Although there are currently well over 170 domestic ETFs, we only trade those ETFs that meet our liquidity and average daily volume requirements (although we may occasionally enter a low-volume ETF as a multi-day "swing" trade). Based on the increase in volume that ETFs have been seeing over the past six months, we assume that more and more traders and investors are becoming aware of the many benefits that ETF trading has to offer over individual stocks. As awareness grows, trading volume increases and new ETFs are released. Exchange traded funds are going to be the trading platform of choice in the future and we're happy to take you there as The Leader in ETF Trading!