Trading ETFs: Gaining an Edge with Technical Analysis

Good for beginners

Deron Wagner desrves a great deal of credit for having the courage to break the mold on Wall Steet. A wonderful book for experienced investors.

This is a great book to learn about ETFs and how to trade them. Deron Wagoner shares his knowledge and outlines a concise methodology for trading. Definitely a reference book you will continue to profit from.

As a 40+ year investor with a vast library of Technical Analysis books, we find Deron Wagner’s new ETF study a gem! With concise descriptions, charts and examples, Deron describes his tested methods for successfully trading ETFs.

This is an excellent book! A must read. I never wrote book reviews in the past but I felt compelled to write one because this book details a methodology that I can believe in giving me the confidence needed for successful trading. In addition to reading this book, make sure to subscribe to Wagner Daily, Deron’s newsletter. It is a great complement to this book and it is a real time application of all his trading methodologies.

The book explains Deron’s disciplined process for trading ETFs. We are talking about trading, not investing. There is a difference. For a long term investor, the book provides some good background on ETFs, their growth and use among both private and institutional investors. The strength of his strategy is the understanding of relative strengths of ETF price action versus the overall market and versus each other. That’s just the beginning. I was interested in subscribing to his service but thought it might be a good idea to read his book. I’m glad I did. Monitoring supply and demand are the underpinnings of successful trading. He provides real-life examples of trades that worked and trades that didn’t. I highly recommend this book and his website for sophisticated traders and investors.

If you trade ETF based on technical analysis (chart reading), this is a book that you must read. I’ve been trading ETF for almost a year. As I’m trying to develop my own trading rules, and strategies, how lucky I am to be able to read a great book like this. It reinforces what I’ve already known, and completes what I don’t know. To me, a successful trading system must clearly define all the following issues, and this book covers them all:

1. How to choose a trade. The book presents a top-down strategy based on relative strength, which is a very reliable indicator.
2. When to enter a trade. The book shows you how to enter on either pull back or breakout.
3. When to exit a trade. The book shows you how to exit a winning trade, as well as losing trade.
4. Position size. The book shows you how to calculate the position size based on volatility of the ETF so that the maximum risk of each trade is the same.

Armed by what I’ve learned from this book, I hope I am on the way to trading with consistent profit.

Mr. Wagner cooks up a delightful winning recipe with a clear exposition of ETFs marinated with a perfect blend of technical indicators. This book would satisfy the most discriminating palates of readers interested in trading any securities, not just ETFs, as long as they are open to understanding and using Technical Analysis.

Exchange Traded Funds (ETFs) look and feel like mutual funds but trade like individual stocks. Since ETFs are synthetic instruments (made up of several underlying stocks or indexes) their average daily volume is largely irrelevant in determining their price and liquidity. Wagner provides a `logical step-by-step process that enables the reader to easily master ETF trading using technical analysis’.

In Chapter 1, Wagner gives an excellent review of the history and growth of ETFs. I agree with Mr. Wagner that `the beauty of his top-down strategy in selecting and trading ETFs lies in its simplicity.’ First determine the broad market trend (up or down). Second, find the indexes with the most relative strength. Third, find the ETF with the most relative strength for the promising index. Fourth, determine the Long/Short position for the selected ETF that is likely to out-perform the market. Fifth and last, determine the entry timing most likely to out-perform the market.

Wagner cautions that his terminology `Relative Strength’ is not the same as the standard RSI (Relative Strength Indicator). Since Wagner compares how one index or ETF acts in relation to the broad market, `Proportional Strength’ may be a more appropriate terminology instead of Relative Strength, with the added benefit of avoiding any possible confusion with RSI.

Wagner’s discussion on `Analyzing Volume’ is interesting but leaves me a bit unsure, perhaps due to my naivete. Wagner asserts that volume is a leading indicator but does not seem to distinguish between volume causing price to rise vs. volume causing price to fall. I have found that OBV (On Balance Volume, developed by Joseph Granville) is an useful indicator to gauge the strength of a market. If price closes up, the current bar’s volume is added to OBV, and if price closes down, it is subtracted. Thus OBV is an indicator that depicts the flow of volume into and out of a security. It either confirms the quality of the current trend or warns of an impending reversal. I am eager to be convinced that Volume is a leading indicator; perhaps Mr. Wagner would elucidate this in a future edition of his book so a reader like myself would be convinced.

Wagner’s discussion on `Supplementing the Basics’ has a brief but interesting reference to Inverse Sector Relationships: If institutional money flows into one sector (as determined by Relative strength and volume) then it must be flowing out of another sector. This can be useful in selecting sectors for long and short trades. Regarding Fibonacci price retracement, Wagner’s discussion is a bit sketchy. Wagner could have referenced other authors (such as Constance Brown ) who despite dwelling on the almost mystical power behind the powerful Fibonacci ratios, provide an excellent treatment of the subject for stock market analysis.

While discussing strategies for entry, Wagner elucidates `overhead supply’ in crystal clear terms, observes how Market Makers and specialists go for `stop hunts’ to scoop up shares at the best price, and educates novice traders why buying ETFs at new highs is worth considering.

Wagner’s discussion of strategies for exit includes the most concise and clear elucidation of Resistances to check. Wagner asks: Are the 20-day and 50-day MA’s overhead? Is there Fibonacci resistance (50% and 61.8%)? Is there Trendline resistance? What about prior highs that have formed horizontal price resistance? Moreover, look for resistance levels in different time frames: 60-minute, daily, and weekly charts. In addition, pay attention to the length of consolidation that marked the prior high ( the `thickness’ of Resistance). While many of Wagner’s observations are useful, this one is worth its weight in Gold: `Once I began using trailing stops, my profitability shot through the roof `. He even gives pointers on how not to fall prey to `stop hunts’ by specialists and market makers.

Wagner illustrates the lessons he is trying to impart to the reader with Ten long and Ten short ETF trades.
Most authors would have stopped here; but Wagner excels himself by adding a chapter on `Tailoring Your Approach’ and another on `Additional Pointers’. These final chapters are strewn with several useful ideas even the average reader can benefit from.

In conclusion, this book (although titled `Trading ETFs’) will benefit immensely traders of any securities, not just ETFs, as long as they are open to understanding and using Technical Analysis.

This is the book I am looking for to get me understanding the ETFs and how to trade them. Very informative.

ETF’s puzzle me. So I purchased this book with the idea that I would certainly get a better insight into ETF’s by studying some methodology regarding buying and selling ETF’s. I describe the writing style format of “Trading Ets’s” as being very similar to Dr. Alexander Elder’s book; “Entries & Exits – Visits to 16 Trading Rooms.”

The bulk of the book is devoted to very detailed narrative explanations, and interpretations, of the daily rise and fall of ETF price charts. I feel that the interpretations are very subjective. Simply put, I don’t have the desire, patience, or self-discipline to be a day trader.

In my opinion, this is the best book for beginning technical analysis. Murphy’s “Technical Analysis of the Financial Markets” is good and comprehensive, but like so many others it doesn’t tell you enough about how to use the great variety of TA tools to make money. Wagner’s book is beautiful in that he sticks with the most basic tools–largely trend analysis–and gives a great number of actual examples from his own experience. He teaches the judgement that is not taught enough in other books. The writing is excellent and he really seems interested in helping you make it work. Don’t worry about the apparent limitation to ETFs. The techniques work just as well with stocks.

Pros
– good information on ETF’s
– a trading strategy backed up by explanations and examples – charts with winning and losing trades

Cons
– not very well laid out, important information is concealed within the body of the book, I would have liked a more clear and concise approach.
– lacked some explanations of the basic principles;
– the chart examples are not always easy to follow.

All in all this book could have been much better simply with better layout and better formatted illustations. I think I will need to re-read it with a highlighter pen and some post-its

The content is good and the cons should not preclude you from buying the book if you are interested in trading ETFs be it on a day, swing or position basis.

I have been trading ETF for five years. I have read more than 10 books on investing and trading. There is only couple of them I liked. This one is one of them. Another two are Stan Weinstein’s Secrets for Profiting in Bull and Bear Markets and Nicolas Darvas’ How I Made $2,000,000 in the Stock Market. Of course, I also like Investing the Templeton Way, but it is for investment, not for trading. The most impressed content in this book was reviewed by many people. I do not want to repeat. Here I only want to stress one thing that many books did not mention and that gives me a lot of help. Buying breakout of 52 weeks or muti-year high can typically yield the greatest amount of profit potential. This book gives an excellent explanation. Also it mentions the risk of this strategy. This is also a great discussion.
I think this book is a much more deep discussion of Stan and Nicolas’s concepts and methods. I have learned a lot!
If you want to make money trading ETF, you must read this book.

A very sensible, clear, and practical book. Very well and clearly written. Once you have read a book like this and a couple of others, you don’t need to read any further. In my case it helped even more because I had studied Murphy’s Technical Analysis book earlier. So I got full mileage out of reading this (thrice over, cover to cover). It helped me refine and improve my strategies.