Page 1012 - How to Make Money in Stocks Trilogy

Start Here 5

Basic Game Plan for Making Money
in Exchange-Traded Funds (ETFs)

As we’ll see again and again throughout this book, staying in sync with the
general market trend is the first crucial step to making money—whether
you’re trading stocks or ETFs. The reason for that will become crystal clear
in a minute.

What is an Exchange-Traded Fund?
An ETF is essentially a “basket” of stocks compiled into one “fund” that you
can buy and sell just like an individual stock. It could be a sector-based ETF
focused on a particular industry, such as energy or real estate. Or it could be
an index-based ETF that tracks the S&P 500 or another index as a whole.
For this game plan, we’ll focus on index-based ETFs that give a broader
representation of the general market.

3 Easy Steps
IBD has a simple approach to tracking the general market trend. (We’ll get
into the details in the Buying Checklist section.)
Each day, you can check the Market Pulse in IBD’s The Big Picture col-
umn to see which of 3 possible stages the market is in right now:

• THE 3 MARKET STAGES •

Best time to buy: General Proceed with caution: Take defensive action: Major
market is trending higher. Market trend may be indexes now in downtrend.
changing.

© 2013 Investor’s Business Daily, Inc.

Based on that, you can see if it’s time to buy, sell, or hold an index-based
ETF. Here’s how it works.