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Wagner cooks up a delightful winning recipe for trading ETFs,
This review is from: Trading ETFs: Gaining an Edge with Technical Analysis (Hardcover)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.
Fibonacci Analysis (Bloomberg Market Essentials)