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ETF Trading Strategies Guide

September 28, 2020 11:00 UTC
Reading time: 15 minutes

Exchange Traded Funds (ETFs) were originally created to replicate the performance of stock market indices. However, the industry has now grown into providing traders and investors access to ETF trading strategies across a diverse range of market sectors such as artificial intelligence, robotics, alternative energy, commodities, currencies and many more.

In fact, the growth of the ETF industry has been so huge that in 2005 the assets of global ETFs was only around $417 billion compared to $4.69 trillion in 2018. This is just one reason why traders and investors are keen to learn more about ETF trading strategies and why you should be too.

ETF Trading Strategies

What Are ETFs?

An Exchange Traded Fund, or ETF, is a type of security which consists of a basket of other securities. They were first created in 1990 in Canada and were originally designed to track the performance of a specific index. For example, the Vanguard S&P 500 UCITS ETF aims to track the performance of the S&P 500 stock market index.

Over the years the ETF industry has boomed and, these days, ETFs also track individual sectors, such as health care, commodities and even currency. They trade on different stock exchanges around the world, such as the New York Stock Exchange. Therefore, just like company shares, an ETF can be bought and sold during the particular stock exchange opening hours.

Trading ETFs comes with many benefits, perhaps the most obvious of which is the diversification which they offer. As ETFs represent a range of assets, they give investors an opportunity to invest across different parts of a market sector with just a single investment.

For example, an investor may be interested in trying to capitalise on the growth of artificial intelligence (AI). Instead of trying to find a specific company to invest in, they could choose to invest in the Global X Robotics & Artificial Intelligence ETF, as this ETF invests into companies that stand to benefit from the adoption of robotics and AI.

What Is an ETF Strategy?

An ETF strategy is a methodology created by traders and investors to select the best ETFs to trade or invest in which suit their individual needs. Essentially, it helps to make buy and sell decisions using consistent tools and data points. The methodology will typically involve a range of different types of analysis which mainly fall under technical analysis or fundamental analysis.

  • Technical analysis
    • This type of analysis involves analysing the movement of price to identify patterns of repeatable behaviour. Many traders will also use technical indicators such as moving averages or the stochastic oscillator on a price chart of an ETF to look for patterns which result in buying or selling opportunities.
  • Fundamental analysis
    • This involves analysing fundamental data such as changes in global economic activity and central bank policy, as well as macro-economic indicators that identify changing trends in the world economy, technology and climate. You can learn more about the latest economic events in Admiral Markets' Trader's Blog and Fundamental Analysis section on the Analytics page.

Most traders and investors will use a combination of both technical and fundamental analysis. However, people who want to trade short-term ETF trading strategies, such as day traders, who only hold trades for minutes or hours, will be more focused on good technical analysis. Fortunately, the technical analysis tools used to trade on other markets such as currencies, shares, and commodities can also be used on ETFs.

If you would like to learn more about technical and fundamental analysis then why not register for the Admiral Markets Trading Spotlight webinar? In these free, live sessions, taken three times a week, professional traders show you a wide variety of technical and fundamental analysis trading techniques you can use to identify common chart patterns and trading opportunities in a variety of different markets. Click the banner below to register today:

Free Trading Webinars with Admiral Markets

How to Start Trading With ETFs

Before we look at three different ETF trading strategies, it is important to make sure you have the right trading tools at your disposal and that you also know how to use them properly.

Choose the Right Broker

Trading and investing in ETFs is very similar to trading and investing in shares. If you want to buy shares in a company, such as Apple, you need to find someone who not only owns some Apple shares but is also willing to sell them to you. This is where your broker comes in. Through your trading platform your broker routes your orders to other buyers and sellers through their connection with the relevant stock exchange.

With the right broker, you can buy and sell ETFs in seconds without meeting the person on the other side of your trade. A broker will also hold your capital to trade or invest with so it's important to choose the right broker - ideally one that offers the highest regulation, security and safety as possible.

For example, investment firms operating under the Admiral Markets trademark offer the highest regulation from the UK Financial Conduct Authority, Australian Securities and Investments Commission, Estonian Financial Supervisory Authority and Cyprus Securities and Exchange Commission.

Use the Best ETF Trading Platform

Your trading and charting platform will help you to access important information you need to trade ETFs. This includes market news, charts, historical prices and technical indicators. With advanced trading technology, you can now have your charting platform and brokerage platform all in one place. Admiral Markets offers the following MetaTrader trading platforms:

All these platforms are offered by Admiral Markets absolutely free! Click the banner below to start your MetaTrader 5 download:

Download MetaTrader 5 Free with Admiral Markets

How to View an ETF Price Chart

Once you have downloaded your MetaTrader trading platform, follow these steps to view the ETFs available to trade on, as well as a chart of historical prices:

1. Open your MetaTrader trading platform.

2. Open the Market Watch window by pressing Ctrl+M on your keyboard.

3. Right-click on the Market Watch window and select Symbols.

4. Search for your symbol if you know it, or click on ETF CFDs on the left-side of the Symbols window.

MetaTrader 5 ETF Trading Symbols

Depicted: Admiral Markets MetaTrader 5 - Symbols Window

5. You will now be able to see a selection of different ETF CFDs available to trade on, as well as details such as the currency the ETF trades in, opening and closing hours and more.

6. After clicking OK, this will add the instrument to your Market Watch window.

7. From the Market Watch window, you can simply select the symbol and then drag it onto the chart to open.

How to Place a Trade on an ETF

To place a trade, you first need to have the chart on the instrument you want to trade on. The steps above will help you do this. Once this is done, you can open up a trading ticket using the steps below:

  1. Right-click on the chart.
  2. Select Trading.
  3. Select New Order, or press F9 on your keyboard.
  4. A trading ticket will open for you to input your entry price, stop loss and take profit levels and unit size (volume).

MetaTrader 5 New Order Ticket ETF

Depicted: Admiral Markets MetaTrader 5 - New Order Ticket. Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

To learn more on how to use the MetaTrader trading platform provided by Admiral Markets watch the video below:

Three ETF Trading Strategies Revealed

Below are three ETF trading strategies to get you started. To learn more about picking the best ETFs to trade on, read our article 'How to Start Investing in ETFs with €1,000.'

1. Invest in the Stock Market, and its Sectors, With ETFs

Using an ETF trading strategy to invest in the stock market is one of the most popular uses of ETFs. For example, if an investor had a positive, or bullish, outlook on the American stock market then they could simply buy shares in the Vanguard S&P 500 UCITS ETF. This ETF tracks the performance of the S&P 500 stock market index.

However, traders and investors can also be more specific into what part of the stock market they would like to invest by using sector ETFs. In the US stock market, companies are often categorised by which sector they fall under. These include retail, consumer discretionary, consumer staples, energy, technology, materials, health care and others.

For example, let's say an investor wanted to gain exposure to health care. They could choose the Health Care Select Sector SPDR Fund ETF (XLV). Instead of just investing in on healthcare company the investor could choose this ETF which invests into some of the largest healthcare companies in the world as it's top five holdings show:

The Health Care Sector SPDR Fund ETF

Source: State Street SPDR Global Advisors - 25 September 2020

Below is a monthly price chart of the ETF:

XLV Monthly Chart MetaTrader 5

Depicted: Admiral Markets MetaTrader 5 - #XLV, Monthly. Data range: 1 May 2008 - 25 September 2020. Captured 25 September 2020. Please note: Past performance is not a reliable indicator of future results.

SPDR also provide ETFs in all of the sectors. These can be seen typing in 'SPDR' in the Admiral Contracts Specification page, as shown below:

Admiral Markets SPDR ETF SearchDepicted: Admiral Markets Contract Specification page, searching for 'SPDR.'

With the Admiral Markets Invest.MT5 account, investors can invest in stocks and ETFs from 15 of the largest stock exchanges in the world, as well as enjoy other benefits such as:

  • The ability to invest in thousands of stocks and ETFs from 15 of the largest stock exchanges in the world.
  • Open an account with just €1 minimum deposit and invest from just $0.01 per share with minimum transaction fees of just $1 on US stocks.
  • Receive free real-time market data, with no delays, at no extra cost.
  • Create a stream of passive income by collecting dividend payouts.
  • Use the world-renowned MetaTrader 5 multi-asset class trading platform.

You can get started right now by clicking the banner below:

Invest in Stocks and ETFs with Admiral Markets

2. Invest in Commodity ETFs

Traders can construct profitable ETF trading strategies through commodity ETFs, which gain exposure to a large option of commodities such as oil and precious metals. For example, if an investor wanted to invest in gold for the long-term, then instead of buying gold bars they could simply buy a gold ETF.

In the Admiral Markets Contract Specification page users can search the range of ETFs available in the Precious Metals category, as shown below:

Admiral Markets Precious Metal ETFs

Depicted: Admiral Markets Contract Specification page showing Precious Metals ETFs.

In the above, screenshot there is a large range of gold ETFs available as well as other metal ETFs such as platinum and silver.

3. Access International Markets (Emerging Market ETFs)

Through ETF trading strategies, one can gain exposure to markets that would not otherwise be available to them. For example, emerging market ETFs have grown in popularity as investors have been interested in the growth prospects of emerging market countries.

In the Admiral Markets Contract Specification page, users can access a large range of emerging market ETFs, as shown below:

Emerging Markets ETFs with Admiral MarketsDepicted: Admiral Markets Contract Specification page showing ETFs and Emerging Markets Equity.

Below is the weekly price chart of the Schwab Emerging Markets Equity ETF (SCHE).

SCHE Weekly Chart MetaTrader 5Source: Admiral Markets MetaTrader 5 - SCHE Weekly. Data range: 28 December 2014 - 25 September 2020. Captured: 25 September 2020. Please note: Past performance is not a reliable indicator of future results.

Why Trade ETFs With Admiral Markets?

With Admiral Markets, you can:

  • Trade with a well-established, reputable company that is authorised and regulated by the Financial Conduct Authority (FCA).
  • Open multiple types of trading and investing accounts such as Invest.MT5 where you can buy shares and ETFs from 15 global stock exchanges and receive free real-time market data.
  • Open a Trade.MT5 trading account to trade via CFDs (Contracts for Difference), so you can trade long and short on ETFs to potentially profit from rising and falling markets. ETF trading strategies which use CFDs also benefit from them being a leveraged product, meaning you can open larger positions with a lower deposit.
  • Access the most popular trading platform in the world, MetaTrader, for Web, Windows, Mac, iOS and Android operating systems.
  • Learn from the Admiral Markets Education section and live trading webinars so you can improve your knowledge and performance!

You can also access all these features and more on a free Admiral Markets demo account. Practice ETF trading strategies in a risk-free environment using virtual funds until you are ready to make the transition to a live account. Click the banner below to open your free demo account today:

Demo Account with Admiral Markets

About Admiral Markets

Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.