Indexes or Etfs
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Whet it come the trading of the Exchange Traded Funds (ETFs), there is always an important question about what to analyze. The same question could be and should be asked and answered not only when a trader dives into the ETFs trading, but always when a trader makes a decision to trade index options, options on the ETFs that track indexes, emini index futures, and other tradable commodities that are developed to track the performance of the indexes.
Before discussing this important question it is recommended to answer on two simple questions, as on them a correct answer on main question depends greatly. The first question is what kind of trader you are: are you an intraday trader who makes several trades within a single trading session, or are you a mid-term trader who make from five to ten trades a year, or are you a long term trader who buys on the market with the purpose of selling in a couple of years? The second question is what type of technical indicators are you using in your technical analysis?
First of all you have to understand that the index tracking Exchange Traded Funds as well as other index derivative products are developed to track the benchmark indexes. Furthermore if the index moves up its tracking ETF moves up as well. If the index drops down the corresponding ETF drops down as well. You may easy see this correlation if you have an access to the performance chart and you may plot on a single chart both index and its exchange traded fund. As an example you may check Nasdaq 100 index and QQQ (Nasdaq 100 tracking stock) or S&P 500 and SPY (S&P 500 tracking stock) - you will see that QQQ price is always 40 times lower than the Nasdaq 100 price and S&P 500 is always 10 times lower than the S&P 500 price.
So, if you are long-term investor or mid-term trader it is essential that you analyze indexes and apply the results of your technical analysis to trade corresponding tracking funds as ETFs always follow their index. However, when you go into intraday trading you may see some small difference in trends of the index and corresponding ETF, therefore, depending on this difference (if it substantial for a trader) it could be recommended to combine index analysis with analysis of ETF.
With second question, if you use price based technical analysis it does not really matter what to analyze. As an example, Nasdaq 100 price pattern is the same as QQQ stock price pattern. Furthermore, the results of both price analyses will generate similar results. However, when it comes to the volume based technical indicators you may see different volume patterns. Therefore, it would be commended to focus on analysis of the indexes for long- and mid-term traders and intraday traders may pay more attention to the volume of ETFs. |
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Author Resource:-
Charts, quotes, technical analysis, signals for indexes and exchanges (S&P 500, Nasdaq 100, DJI, etc) are essential in options trading, trading index derivatives (QQQ, SPY, DIA, etc), index emini futures and index tracking funds.
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By :
Viktor Ka
Submitted
2011-05-07 12:49:26 |
Article From Article Mayhem
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