Since 2007, ETFs have become the new “hot ticket item” among investors and traders alike in today’s marketplace. Growth in the ETF markets is outpacing many other sectors in the stock market as more investors pile their portfolios into what they believe is a “safer” investment vehicle.
Imagine their surprise when they discover ‘safe’ actually entails higher risk than they expected!
The truth I’ve discovered is that many people investing in ETFs are still losing their money over time. They may not be losing as much, due to the reduced stock specific risk in ETFs; but they are still coming out on the wrong end of their trades.
I believe there’s a deep misconception around ETFs: and I’ve outlined the five reasons I’ve learned most people are not successful when trading ETFs.
As well, I’ve outlined specific examples of the smart way to approach trading ETFs to help you overcome the challenges in today’s market.
Let’s look first at what so many traders do wrong with ETFs:
1) Investing / Trading the “Wrong Way” utilizing an outdated & obsolete “buy and hold” approach
The buy and hold theory is flawed for two primary reasons; first, it assumes that you can’t properly time the market (entry & exit points). Second, it assumes that the market will consistently grow on an annual basis. If there’s one thing that we’ve all learned in the past decade, it’s that the markets don’t always go up and more often than not they crash…sometimes in a very BIG way.
2) Trading with an incomplete method (or worse yet, no method at all)
Investing and trading, much like professional sports is all about execution around a specific game plan. If you don’t know what your edge is or what your limits are, then you’re not actually trading at all, you’re simply gambling.
3) Going after profits first and thinking about risk second (if at all).
Losing traders & investors let their “Greed” get the best of them. They get so enamored with the potential windfall that they start taking unnecessary risks.
4) Trying to capture entire market moves
The only way that a trader or investor is able to capture an entire market move is by sheer luck. There is just no clear definable strategy or indicator to pinpoint these exact positions on a chart.
5) Trying to trade in every market regardless of condition.
Not every market is ripe for trading. Non-deliberately trading markets greatly reduce the traders’ chances for success because market movement is indistinguishable. The best trading method in the world will yield little to no results in a market like this because the odds of success are stacked against you. It’s not your trading style…it’s simply the market.