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Over the past few days I've spoken on four radio shows around the country discussing ETFs. What's interesting is that even though most of us are entrenched in ETFs, the rest of the world hasn't reached the same level of understanding. But the interest is high and the learning curve is rapid.
One of the radio hosts asked me what the key to successful ETF trading is. In reality I could have spent an entire afternoon explaining the answer. But because I was on the air for 11 minutes, I applied the 80/20 rule to his question.
1. Focus on buying ETFs above their 200-day ma.
2. Wait for them to pullback.
3. Sell them when they rally.
In 3 short rules, I basically summarized 80% of the success that goes into successfully trading ETFs.
Most things in life come down to basic things like this. A few years back, I got a chance to watch 80 major league pitchers working out in the off-season with one the great pitching coaches in Southern California. Many of the big names were there, including the four big Z's, Zito, Zemeskal, Zimbrano, and Zimaya. The combined earnings of these 80 pitchers were many hundreds of millions of dollars a year. Obviously people getting paid like this are at the top of their game.
What I expected to see during this off-season workout was magic. I expected to see them doing things no other humans could do including throwing baseballs 100 mph pitch after the pitch.
Instead of this though what did I see? I saw 80 multi-millionaire pitchers standing there on one leg doing the same balance drills over and over again that were taught to precocious 7 and 8 year olds pitchers in their first lessons.
The exercise was the same, the balance count was the same, the repetition was the same. The best of the best were practicing the same thing they were taught as children. It was the 80/20 rule. 80% of pitching is the same basic motion no matter what level a pitcher is at. Repeating and perfecting that motion is a lifelong experience and no matter how many millions of dollars teams were paying these guys, they still used the off-season to practice the most basic elements of pitching.
The same philosophy goes for trading ETFs. We see it in the Daily Battle Plan Model Portfolio. For the past full year we've been buying ETFs above the 200-day after they have pulled back and we've sold them into the rallies (and under the 200-day we've done the inverse). And the results have been 40 of 48 winning trades executing the same thing over and over again, just like those 80 professional pitchers, a few of who we'll watch this month on national TV in the playoffs and the World Series.
The key to ETF trading (and many things in life) is to focus on and perfect the basics. All the fancy technology and tools may help, but when it really comes down to it, it's simply doing the same things perfectly day after day.
This is from Larry Connors' Daily Battle Plan which he publishes each morning. If you'd like to take a free trial click here, or call 1-888-484-8220 ext. 1 to start your free trial today.
Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.
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