Amazon.com: iMoney: Profitable ETF Strategies for Every Investor: Tom Lydon, John F. Wasik: Books

Amazon.com: iMoney: Profitable ETF Strategies for Every Investor: Tom Lydon, John F. Wasik: Books: "How to Buy, Sell and Choose ETFs
3:56 PM PST, February 18, 2009
We love hearing from our readers when they have questions about exchange traded funds (ETFs) or the trend-following strategy. This reader had specific questions about when we buy ETFs, when we sell them and how we choose them.

1. Is the 200-day moving average the SMA or EMA?

We use the 200-day EMA. What’s the difference? The simple moving average (SMA) is calculated by tracking the price of a security over a particular time period. The exponential moving average (EMA) involves a trickier mathematical formula which puts greater weight on the most recent price movement rather than an equal weight over past 200 days. The moving average you choose is a matter of personal preference, but the EMA is consistently closer to the actual price, which is why we use it.

2. When selling an ETF after it declines 8% from a high, do you set an 8% trailing stop loss order at the time of purchase?

Yes, this is what we do. A trailing stop loss order is when the stop loss is set at a fixed percentage below the market price. As the market price rises, the stop loss prices rises proportionately. If the price falls, the stop loss stays in place.

3. How do you"