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Trading > Larry Connors on Short Term Trading

How to Choose the Right ETFs to Trade: The Role of Volume

Larry Connors | Tue, 06/09/2009 - 11:15am | BattlePlan for Stocks, ETF trading, ETFs, ETFs (exchange traded funds), Larry Connors |  28 comments

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Now that so many ETFs have come to the market you need to have the ability to identify which ones to focus on versus which ones to ignore. One of the many factors that go into this decision is the volume and liquidity of an ETF. Here are the rules I like to use.

1. The past month's (the past 21 trading days) average daily volume is greater than 250,000 shares a day.

2. Each day must have a minimum volume level of 50,00 shares. This rule allows you to avoid those ETFs that have 2-3 day volume spikes due to some crazy reason, and then go back to trading 10,000 to 20,000 shares a day (meaning that they are illiquid most of the time).

By using these two volume requirements, it assures you are trading liquid ETFs and that you are trading ETFs with fairly tight bid/ask spreads.

Reminder: I'll be conducting a full-day, online seminar on trading ETFs with our TPS Strategy this Saturday from 10 am to 4 pm Eastern. If you'd like to attend, please call 213-955-5858, ext. 1 for further details. The cose of the seminar is $4995 and includes all the course materials, the entire day's class, a special follow-up class in mid-July including live trading, along with 3 months of our upcoming TPS web-based software (this will be priced at $495/month).

If you are a member of my Chairman's Club, you are invited to attend at no cost. Please let us know that you will be attending (send a note to danilot@tradingmarkets.com so a spot will be reserved for you.)

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