As an investment vehicle that can promise a consistent — and sometimes exceptional — rate of return on investment (ROI), exchange traded funds can really deliver. Getting a handle on ETF trading strategies will be necessary, though, before jumping into investing in ETF’s in any meaningful way. There are a few things to know, first of all, about exchange traded funds.

These particular funds resemble mutual funds in some ways, especially in how they are set up. Additionally, ETFs usually restrict membership — if you want to call it that — to what ETFs refer to as “authorized participants.” This usually means institutional investors who have the ability to buy and sell huge blocks of assets. Small investors can participate through ETF trading systems, though.

Imagine corporate stocks and how they are traded or bought and sold and you will have a good idea of how exchange traded funds are also moved through the markets. Almost every exchange traded fund establishes its operations so that it can track one or several of the major market indexes. For example, many track the S&P 500. This makes it easier to follow trends and set up trading strategies.

There are more strategies out there that can probably be counted, though they usually fall into a couple of major categories; fundamental and technical. For those with the savvy, or patience, to sit down and learn technical strategies, the rewards can be quite lucrative. Most traders using technical indices believe they can discern patterns or shapes in a stock chart, basically.

For those with the ability to pick out shapes and patterns in market movements — by analyzing a stock chart — the possibility of good income is very real. These movements can signal upward and downward movement in markets that can be timed through technical analysis, with the correct buy and sell orders put in at the right times.

One of the most common of technical strategies that exists today is to utilize what professional and amateur traders call the “moving average cross.” With it, traders look at short-term movements in the market — or a stock or fund — and then overlay that short-term movement on a long-term trendline. Usually, most short-term movements are from– to 25 days in duration to create a moving average line.

After that moving average line has been created, most traders will superimpose that over an analysis of the short-term movements in an attempt to discern the actual movement the price of the stock or stock held in the ETF will take once it crosses the moving average line. Long-term trendline analysis, which is the second element, takes a 50 day moving average, which can damp the short-term trend.

In this manner, ETF traders can look at the long-term trends and create a moving support line. Usually, traders using this technical strategy will look at purchasing a stock as it begins its upward movement or once it goes back up after it has touched or slightly penetrated the 50 day moving average. Opposite, a trader could sell the stock short. Either way can work effectively.

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