Whether you consider yourself a day trader or swing trader, you likely also have a long-term portfolio. When’s a good time to start adding (Exchange Traded Funds) ETF’s to your portfolio? Let’s take a look at the typical price cycles for ETF’s and stocks. There is a price move up, then a topping, which is followed by a pullback and a consolidation period. Take a look at the diagram below.
When do you think is the best time to add an ETF to your long term portfolio? I would consider looking for ETF’s appearing to come out of the consolidation period to take advantage of the next move up. Below are some examples to consider now.
The first example is Energy Select Sector SPDR ETF (XLE). You will see the price move up in 2013 and 2014, and the top forms in the summer of 2014. Then the price pullback in 2015 followed by a consolidation in 2016. You do not want to jump in too early. I suggest that you wait until the 100ma or 200ma has turned up and price is above the moving average. In the picture the green, gray and red MA is the 100ma. Also notice that the Simpler Trading Squeeze has formed, but has not fired off yet. If price does move up it will fire long. This could give XLE the initial boost out of the consolidation period.
Below is SPDR Gold Trust ETF (GLD). You will see it has a similar pattern. Yes, it has pulled back the past few days. This is why you do not want to get in too early. It has some resistance around 125. However, price is still above the 100ma (moving average) and the new trend is pointed up.
The last example is PowerShares DB Agriculture Fund (DBA). It also has a similar pattern to XLE and GLD. Price is trying to break out of the consolidation period, the 100ma has turned up and price is above the 100ma.
These are just three examples. There are many others. I use finviz to find trade setups.
I hope this was helpful.
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