For many investors who like to invest in the overall trend of the market instead of individual stocks tend to invest in the ETF “SPY” which was created to track the S&P 500 index. By in vesting in SPY, many investors are avoiding the things that can happen to individuals stocks by investing in 500 stocks. It’s a smoothing affect that allows momentum indicators to react to, or predict, movements more accurately. Combined with moving averages, Bollinger Bands and daily and weekly charts, I’ve found that the momentum indicators are pretty effective in assessing the trends in the marketplace.
So when do I use this strategy? First of all, this isn’t an investing strategy. By buying the SPY an investor is not actually buying securities of a company. Their really only investing in an index. So for me this isn’t a long term strategy. It’s a trading strategy. I’m simply buying into trends so I only hold the position as long as the trend remains in place. When the trend changes, so do my positions.
Instead of investing in the SPY, I tend to use leveraged ETFs. My favorites are the 3X ETFs. They’re basically three times more volatile than the market averages and I can buy them for a market moving higher or a market moving lower. The ones I use for a market moving lower are simply referred to as inverse leveraged ETFs.
For investing in a basket of DJIA stocks moving higher I use the ETF “UDOW”. For a similar basket of stocks moving lower I use the ETF “SDOW”. For a basket of S&P 500 stocks moving higher I use the ETFs “SPXL” and "UPRO", and for moving lower I use the ETFs “SPXS” and "SPXU". There are other ETFs that relate to just about any area of the market a trader wishes to trade but these six are my personal favorites. If used properly these ETFs can produce a lot of wealth very quickly, but it can also reduce a traders wealth just as quick. These are not for beginner traders and their nor for anyone who isn’t able to watch the markets regularly. But I use these instruments to create wealth that I subsequently use to accumulate shares of dividend growing securities. I’m a dividend growth investor after all.