Trading Strategies When Building Your Own ETF Portfolio – When To Trade?

By: Pete
Date posted: 01.22.2012 (9:30 pm) | Write a Comment  (0 Comments)

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A big part of the success of your strategy will depend on your ability to be disciplined. Why? Because it’s so much about which day you should trade or how often, it’s about taking the emotion out of it. I think the most important part is to be consistent over the long term. How so?

First, you should decide what your criteria is for trading. It would usually be one of two things:

-Either you have a set amount of money to invest (through savings, dividends, etc)
-Or you use a set frequency

I personally prefer trading at given dates. We discuss the way to get the trades done in another post but the overall mission should be clear:

Rebalance to replicate to your target portfolio by minimizing your trading fees

What this means is that if you should have 25.0% of your money in one ETF and you currently have 24.7%, it’s very likely that you should not be trading as that would be more costly with little to no benefits. There is no set rule but I would say that as a rule of thumb, every rebalancing should bring your actual weights within 5% of their targets.

If you prefer rebalancing each time that you have a set amount of money, I would not go much lower than $2000. The goal is once again to diminish the cost. Of course, you do not want to set the amount too high as the non-invested amounts will tend to perform worse over time. It’s all about finding the right balance.

The Temptations

Over time, you will be tempted to modify that methodology. Why? Mostly because of emotions. If stocks start to lose value very quickly, you might be afraid and wait longer to put more into the market. That will unfortunately generally mean missing the rebound as well. If it can help, you could write down those rules and read them over when you will be tempted. Be consistent.


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