Advanced ETF Trading Strategies for a Solid Portfolio

Advanced ETF trading strategies are for experienced investors and traders.

By Andrew Moran

Edited by Petar Milenkovic

Published May 21, 2024.

two business people strategizing about a stock market

If you're an experienced investor and you've grown your portfolio, chances are you're on the lookout for new ways to expand. Maybe you want to enter new sectors, diversify, or find different ways to trade.
Either way, advanced strategies for trading ETFs (exchange-traded funds) serve many purposes that go beyond simply making a potential profit. However, they are not without high risks.
Let's look at four well-known ETF trading strategies and what you need to know.
Note: Fortrade offers the ability to trade the price changes of instruments with CFDs and NOT to buy/sell ownership of instruments themselves. All the information in this blog is purely educational and should NOT be considered advice.
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Advanced ETF Trading StrategiesShort Trading
Investment Allocation
Swing Trading
Sector Rotation
1. Short TradingShort trading is a trading strategy that is on the price of a stock falling. It works by borrowing an instrument and trading it on the open market, with plans to take it back later for less money.
Ultimately, the objective is to speculate and potentially profit from a decline in the instrument price. 
Investors use this strategy if they think that a stock price is too high and unjustified. Typically only more experienced traders dabble with the short-trading strategy because: 
There is no limit to potential losses
 There is a possibility of a short squeeze, when investors are forced to close positions because of prices consistently increasing.
For example for short trading, let's say that an investor thinks Acme International is overpriced at $100 and believes it will fall in the next two months to $40. So they will borrow Acme shares and sell them to another investor. Should shares fall, the investor will take them again and turn a potential profit.
» This is how long you can hold a short position in stock trading﻿
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2. Investment AllocationInvestment allocation balances out risk and reward in an investment portfolio. This is done by distributing resources according to:
Investor's objectives 
Investment horizon
Risk tolerance 
It works by selecting different stocks, ETFs, commodities, or bonds to the three parameters above.
Investors can use this strategy at any time in an economic cycle. Once again, this approach is typically reserved for advanced investors, since they have more expertise in various investment instruments. 
For example, an investor could adopt the 60/40 investment portfolio: 60 percent equities and 40 percent bonds. This allocation ratio leans towards growth investments because of equities, with enough bonds acting as a stabilizing force during a potential market downturn.
» Here's how to use SQQQ ETFs in trading﻿
3. Swing TradingSwing traders take and hold instruments for short to medium-term periods, waiting for the right price movement to make a potential profit. They can either buy low and sell high or profit from a price decline—in which case, swing trading looks more like short trading.
This approach usually involves scanning the headlines and relevant news to find the right instruments and then using indicators like moving averages or MACD to determine trends and potential entry and exit levels. 
As an example, let's say shares start rallying one percent in a session and then overall eight percent by the week's end. In that case, you would trade all or some of your positions before the weekend.
However, bear in mind that swing trading is not for beginners—it takes advanced knowledge of the market and instruments to execute this strategy well.
» Keep your options open! Fundamentals of CFD stock trading explained﻿
4. Sector Rotation In sector rotation, investors move resources from one sector to the other, because the first is going through a downturn. 
Sector rotation is meant to mitigate risks, increase potential earnings, and automate the investing process. It is typically used when one sector is at the beginning of a bear market, much like tech was at the start of the Federal Reserve's quantitative tightening (QT) campaign. 
An example of sector rotation would be rotating the bulk of one's portfolio from banks and tech sectors because they are facing downturn. You could, hypothetically, divert resources to oil and food stocks if these sectors are bullish.
» Find out how often dividends are paid to stockholders.
Before You Use Advanced ETF Trading StrategiesAdvanced ETF trading strategies are well-known and used, but they require patience, dedication, and, above all, knowledge of the overall financial markets.
Over time, investors typically begin to develop a feel for trends, directions, and movements in the market. The more they trade and learn, the more they're ready to use these trading strategies.
Before using them, though, it is essential to learn more about financial instruments, price movements, and the markets. Fortrade Online Academy offers a lot of educational materials on these topics. All the information in this blog is purely educational and should NOT be considered advice.
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