Home > management, Markets, trading > Profitable ETF Trading Strategies: fighting for dimes

Profitable ETF Trading Strategies: fighting for dimes


There are some traders who say that it is not worth our time and attention to fight for nickels and dimes. In my opinion though, it depends on the nature of your trading whether this is sensible advice or not. 

Here is an example of when fighting for nickels and dimes makes a lot of sense for a short-term trader. 

Imagine you have a system that will identify opportunities to take positions in exchange traded funds in stocks that have been beaten down the most in the last two weeks. In the strategy you might be looking for moments when the market will reverse and these candidates reverse sharply back to fair value. 

In this strategy you would be looking for moments in the first hour of trading when price seems to have found its lowest point of the day and is making a sideways movement in a narrow trading range. If this happens and you see that the market itself is beginning to reverse and go back up, it would be possible for you to find an entry point on the beginning of the upward movement that could be protected with as little as 20 cents of risk per share. 

Let’s also suppose that in this strategy, that the initial moves happen very quickly and allows you to move your initial stop to  break even quickly. In this case you would be essentially holding a no lose trading proposition. Now let’s see what happens if we fight for a dime. 

In case number one, I have decided to risk $300 in a $30 off with $.20 per share of open risk initially. Doing the math, I would be allowed to buy 1500 shares of the stock. If it moves one dollar in my favor my net profit is $1500 minus commission. 

In case number two I have decided to risk the same $300 but I am able to fight for an additional $.10 of price improvement upon entry and only need $.10 risk per share of open risk. In this scenario I am able to purchase 3000 shares of the same stock and will essentially double my return because of my increased position size. I am able to do that without taking on any additional risk. 

This example is simplified, but not too simple. These opportunities abound every day in the market in US large caps in exchange traded funds that track the performance of large global markets. It is worth your time and attention to sharpen your practice to fight for dimes and nickels if this is your type of trading.

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