How to Trade ETFs and Stocks Near the 200-Day Moving Average

As I’ve mentioned a number of times over the past few months, markets behave differently when the major averages, especially the S&P 500, starts trading around its 200-day moving average. I’ve witnessed this over and over again in my 28 years of trading and I’ve even gone as far as being able to quantify this through our research firm.

Today the market is oversold but the S&P is again hovering around its 200-day causing the overall market to churn. There was a lot of money put to work recently, especially last month, and in spite of the media creating the impression that the market has been cranking, the reality is that the S&P today is below where it was on May 4.

The bottom line is that this is still a market that has not run in either direction from its 200-day and this type of whipsaw behavior is normal around these levels. When the S&P is near its 200-day (we like to use plus or minus 1.5% as a guideline) you may want to adjust your position sizing according. This adjusted position sizing (meaning smaller position sizes) helps you avoid some of the churning that occurs near the 200-day and it allows you to patiently wait until the market moves decidedly from the 200-day, either higher or lower.

Special Note: Our High Probability ETF Trading book is now back from the printers and will be mailed out later this week. If you haven’t ordered your copy yet you can do so by clicking here. The pre-sales for the book have exceeded our expectations and the early feedback from the many traders who have already downloaded the book has been excellent.

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This is from Larry Connors Daily Battle Plan which he publishes each morning. If you’d like to take a free trial click here, or call 1-888-484-8220 ext 1 to start your free trial today.

Larry Connors is CEO and Founder of and Connors Research.