convincing enough arguement for me to seriously look into this / these vehicles thanks! any links to articles on these? (PM me)
I have also been looking into trading the Q's. At first glance I really did not like them. They did not follow the patterns I liked with stocks and I never received the same buy signals that I did with my stocks. I was thinking about not trading them at all and then I found this site: www.qqqdaytrader.com The only thing these guys trade is the Q's. They will make around 8-15 trades per day. If you look at the results link on their website you will see that they are up $132,700 since the beginning of April. That made me take another look. Now I am starting to trade the Q's more often and really looking into some other ETF's. This is a good thread. Keep it up. NO!!! I AM NOT INVOLVED WITH QQQDAYTRADER IN ANY WAY. I JUST USED THEIR SITE TO POINT OUT THE FACT THAT YOU CAN PROFITABLY DAY TRADE THE Q'S!
ANCHOR On their website I noticed their results are based on trading size of 5000shs or roughly $120000./trade. If you multiply X #of trades per week it appears their performance is below ave for $ risked; i.e. way less than 1%. Just something to consider.
I've just completed my article on getting efficient order executions. This is the first of three parts, so I will only be posting the first part here. Hope this is helpful to you: The most important thing I have learned for getting good ETF executions is to always follow each ETF's respective index and use it as the basis for making entry and exit trade decisions. For example, if I am trading BBH, the Biotech Index HOLDR, I will always follow and chart $BTK, which is the symbol for the Biotechnology Index. If I am trading SMH, the Semiconductor Index HOLDR, I follow $SOX, the symbol for the Semiconductor Index. If I trade QQQ, I follow $NDX. Get the idea? I get a much better feel for the true direction of the sector by watching its respective index. Because each sector index is comprised of a more diverse group of underlying stocks than the respective ETF, it is more accurate to watch the index instead because it will trend even smoother than the ETF. The bigger the spread on the ETF, the more important this technique becomes because it gives me a better idea as to where to place my limit order to try to get filled. If I am trying to buy or sell short an ETF HOLDR that has a big spread, knowing the relative strength or weakness of its respective index tells me how good of a chance I have of getting filled if I try to buy or sell short at a better limit price than the prevailing market. Although some of the ETF HOLDRs and Index Funds can be a bit too illiquid for day trading or scalping, they are excellent for the types of multiple-day swing trades that we focus on because getting perfect fills is not as crucial. Let's look at a real live example that occurred last Thursday. On August 22, one of our newsletter plays was to buy OIH (Oil Service HOLDR) if it triggered past a price of 54.80, which it did within the first 30 minutes of trading. As soon as it triggered, I noticed that the specialist widened the spread on OIH, which made it difficult to know at what price to place my limit order to buy. Wanting to be sure if the rally was for real, I quickly consulted a chart of $OSX, the symbol for the Oil Service Index. I immediately realized there was a lot of relative strength in the index because $OSX was consolidating at the high of the day as the broad market was selling off. Therefore, I felt much more comfortable simply paying the offer for OIH because I was confident it was going to go much higher, which it did. By the end of the day, we netted more than 2 points on the trade. However, if I didn't consult the $OSX chart first, I may have never entered OIH because I would not have been as comfortable with paying up due to the large spread. Let's look at what might have happened if the opposite scenario occurred last Thursday. Suppose that OIH triggered at 54.80 and once again had a large spread. We once again consult the chart of $OSX, but this time notice that the Oil Service index has simply been in a sideways trading range, chopping around, and is not showing much strength. This would cause me to believe that the specialist is just trying to suck in buy orders so he can quickly drop his offer and cover his shares for a profit a few minutes later. If I saw that scenario, I would either wait for more confirmation before buying OIH or place a buy limit order closer to the bid price rather than just paying the offer. In the event I did not get filled, just as well because the sector would not really have been that strong yet anyway. I will gladly pay a higher price later for the increased chance of the trade going in my favor. While the biggest benefit to following the indexes is in executing less liquid ETFs, I have also found a benefit to watching the respective indexes of even the most liquid ETFs, which are QQQ and SPY. Even though both of these ETFs typically trade with a one to two cent spread, I have found that watching the Nasdaq 100 (NDX) and S&P 500 (SPX) is very beneficial during times of choppiness in the markets because it prevents me from getting shaken out of an otherwise good trade. Here's why. . . If you watch QQQ and SPY trade on a level 2 screen (which is not necessary if you are exclusively swing trading them), you will notice that both of these ETFs possess a high concentration of ECNs such as Island, REDI, and Instinet on both sides of the market. Although I will get into ECNs in more detail in next week's issue, the main thing I want to make you aware of is that the intraday scalpers and momentum traders will often cause crossed markets with the slightest movement in the market. For those of you who do not know what a crossed market is, in this case it means that the ECN bid will be higher than the specialist's best offer or the ECN offer will be lower than the specialist's best bid. When you see this type of price action, it can often cause you to panic and stop yourself out, even though the Nasdaq 100 futures or the S&P futures may have barely moved. However, if you are watching the actual Nasdaq and S&P indexes instead of the underlying ETFs, you will not be subject to the jumpiness of the ECN traders who often only make a difference of a few pennies anyway. Once you see the actual market index make a solid move, THEN you can make a better decision to take your profits or your stop without doing so prematurely. The easiest way I have found to follow both the sector index and its respective ETF is to set up a series of charts on your trading software that look something like this: This is a 5-minute intraday chart that overlays $OSX (the green line) with OIH (the pink line), which allows you to see how one is trading relative to the other. I prefer a basic line chart because it is easier to see convergence or divergence with a line chart. I do, however, use a candlestick chart when viewing only one stock or ETF at at time. I recommend you set up overlay charts with each index and HOLDR so that you can quickly view price divergences (which also illustrate ETF arbitrage opportunities. . .but that's a whole different story). Here is a partial list of ETFs and their associated index symbols to get you started. You may need to check with your data provider regarding the format of the index symbol (some use a dollar sign, others don't): Following the index is only one component to getting good order executions, and there are many other areas we will be discussing in subsequent weeks such as where to route your order and whether to use market or limit orders. I will post those articles here as they are written.
Would'nt the major component(s) of the etf OR the etf lead the index and not the other way around as you suggest?
OK...Im convinced. I'll trade the ETF's. But how??? Don Miller (and others) of Tradingmarkets.com has written extensively about how to trade the ETF's....What's your method ??
Please add XLK to the list of ETFs that I posted on page 3 of this thread. That one qualifies because it trades an average daily volume of 867,000 shares, but I failed to include it on the list.
Monday morning's gap up in the S&P and Nasdaq faded shortly after the market opened, into the 10:00 AM reversal period. This enabled yesterday's short fade plays on DIA and PPH to work out great, as well as our shorts from over the weekend. Yesterday morning was a great example of how you can trade contrary to the market direction and have the odds significantly in your favor. By selling short the rally into resistance, we minimized our risk and maximized profits with the morning fade plays. Although the opening fade does not work all the time, there are specific days when the odds of it working are pretty good. Because the market closed so weak on Friday after only one day of selling, it was likely there would be follow-through at least into the next morning, which is exactly what happened. Going into the afternoon, the markets found support from the pre-breakout consolidation levels of last week. That is why I suggested tight trailing stops to protect your profits in the event of an afternoon reversal. Going into today, I'm not thrilled about the prospects for trading on either the long or short side of the market. Yesterday afternoon's rally put both the S&P and Nasdaq in "no-man's land." There is solid support directly underneath current price levels, but also a few days of price resistance overhead. In fact, just about every chart I am studying on a 60 minute time frame has a pattern that looks something like this: Although you could say there is a bearish head and shoulders pattern setting up on the above chart, I'm not inclined to be very bearish yet because there is a good deal of price and moving average support in this area AND the recent market sentiment is still on the bullish side. See why I said most sectors are in "no-man's land?" I don't have a solid feel for where the market is headed right now, but today's action could tell us a lot. When I see chart patterns like the above, the next trading day is typically whippy, especially combined with the fact that we are in a pre-holiday trading week. The lighter that volume is today, the choppier I expect trading to be. Today will probably be a SOH (sit-on-hands) day, meaning the most profitable thing you can do is absolutely nothing. Nevertheless, I did find a sector play that looks OKAY, but I'm not very excited about it. We will be looking to buy PPH on a pullback to 76.60 or lower with a stop at 75.80. Just to reiterate, I recommend reducing your share size on all trades until after the holiday.
The funny thing about sector ETF's is that even though they trade 500K + shares a day, their spread is still relatively wide. Take RTH today, for example. A busy day for retail stocks cause MER downgraded everything in the sector...and, eyt, RTH had average spread of 30 cetns or bigger!! How can you daytrade these? Among the ETF's that offers reasonable spread are as follows: SPY QQQ DIA MDY SMH Even really thick ETF's like BBH, OIH has spread of bigger than 20 cents very often. PPH..which trades about 500K a day (800K+ avg in last 22 days) has spread of 35 cents averge! XLK and XLF seem to have small spred even though their avg daily vol is relatively small.
DaytraderNYC, You are certainly correct that the spreads can be large on some of the ETFs. One thing that I probably never clarified is my time horizon in trading them. I rarely will enter an ETF trade with the intention of being in it for less than several hours. In fact, our plays average a time horizon of anywhere from 24 - 48 hours. For me personally, a 20 - 30 cent spread does not matter much because I usually have a target of 1 - 2 points on each trade. However, if you are scalping an ETF with a profit target of 20 cents, a spread like that would not work for you. Another thing I have noticed is that if my timing on the entry is good, I can usually get a better price by putting a limit order in the middle of the spread, especially when using an ECN such as Island. My entry style involves selling short into rallies and buying pullbacks, which enables me to get great fills and positive slippage from the specialist most of the time, even with wide spreads. If I am scalping or trading with a short time horizon, I typically stick to the same ETFs you mention. . . QQQ SPY DIA SMH I will answer your other question about my trading methods in a separate email.