How to Choose the Right ETFs to Trade: The Role of Volume
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 that you are trading liquid ETFs and that you are trading ETFs with fairly tight bid/ask spreads.
I will be conducting a 2 1/2 day High Probability ETF Trading Seminar beginning August 14. If you’d like to attend a free online presentation explaining the concepts of High Probability ETF Trading and introducing the 2 1/2 day Seminar coming in early August, please call 1-888-484-8220 ext. 1 or click here to register.
Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.