Profitable ETF Trading Strategies - Sector Contrarian

There is a new conventional wisdom beginning toIn the last few days however, oil has put in the
emerge from the stock market these days and itintermediate bottom and is prepared to make a
says that there's no way you can make money in atraders reversal to the upside. This move is
bear market unless you have the good fortune to besupported by the news of increasing violence
an expert market timer and bet against the recoverybetween Israel and Hamas, coupled with a recent
of the broad market. While it is true that having adecision by OPEC to reduce oil production in order to
sense of market timing can improve your bottombolster the price of barrel of oil. Taken together,
line, that's not the only way to take advantage ofthese facts all point to the possibility of a short term
the current turbulence. By paying close attention to arise in the price of apparel of oil of 10 to 20%, while
select group of exchange traded funds thatthe recent price reversal offers a definable support
represents important business and commoditieslevel at $28 a barrel. This is a reward to risk ratio of
sectors in the global market, an astute trader cangreater than four to one, and an astute trader can
find very reasonable trades with favorable reward tobegin a buying program whenever he sees the price
risk ratios which offer a way to trade these marketsof oil actually going up during trading hours. This
effectively.provides an additional level of security for short-term
Here is an example in oil, which can be traded usingtrading.
an exchange traded fund with a symbol of USO.If you examine the behavior of the price of oil after
Go to any web-based free stock market chartingthe market opens you will see that in the last 200
website, like Yahoo finance and call up a 15 yeartrading days price moves in the direction of the
chart on a barrel of oil using monthly candlestickopening gap. So, if you see oil gap up there is the
charts.good probability that it will close higher than the open
You will see that this commodity trades in longthat day. Conversely, if oil gaps down then you can
powerful swings that can last months at a time. Youexpect the price to be lower by the end of the day.
will also see that at crucial turning points the reversalThis relationship is not always so readily apparent in
of the trend can be swift and violent. This meansoil nor can it be used as a simple rule for any other
that to trade this exchange traded fund effectively,exchange traded fund. Only by constant attention
you must be alert to where we are in the currentand analysis can you discover these kinds of tradable
trend and be alert to the possibility of turning pointstrends emerging from today's volatile stock market.
at critical price levels.The rewards for this hard work make it worth the
Currently, we are near the bottom of the mosttime for disciplined, pragmatic trader.
violent selloff in the shortest period of time that oilBy looking for these kinds of favorable reward to
has experienced in the last 15 years. A barrel of oilrisk ratio trades, a short-term trader is able to take
recently traded for under $30 a barrel while only aadvantage of today's volatile stock market in a risk
few months ago it was trading near all-time recordsmeasured way that makes a lot more sense than
above $130 barrel. A selloff of this magnitude is ansimply dumping money into a passive mutual fund and
indication of a market overreaction, where emotionshoping for success. Naturally, you must do your own
have gotten in the way of rational judgment. This isdue diligence and take personal responsibility for your
entirely normal and should be expected.results. Good trading!