Trend Trading Research

Exchange-Traded Funds (ETFs – read the article What Is An ETF if you don’t know what they are) seem to be ideal for trend trading.

Firstly, as Curtis Faith argues in the book Way Of The Turtle, trend following is best suited to either: fundamentals-driven markets such as currencies or interest rates; or speculator-driven markets such as stocks and futures. ETFs can be used to track stock market indexes which fits neatly into the second category.

Secondly unlike managed index funds there is generally no management charge as there is very little to manage. Additionally you can trade ETFs for roughly the same fees as it will cost you to trade the shares themselves – in contrast most funds will charge you and entry and exit fee.

Thirdly, it is possible to purchase a short ETF allowing traders to benefit from a downwards trend as well as upwards trend.

Finally, ETFs also have several potential tax advantages:ETFs do not incur stamp duty; and you can  trade ETFs as part of an ISA or SIPP making the trades entirely tax-free.