Buying ETFs using moving averages

If you bought the XIU.to index, the top 60 largest companies on the TSX, on Mar 16, 2007, you would have paid $18.44/share.  At the current price of $23.05, 10 years later, you would have made a 25% profit or $4.61 or 2.5%/year.  Since the XIU.to pays dividends, you will also collect an average total of $4.71/share in dividends over the 10 year period.  Therefore, if you combine the dividends and the share price over a 10 year period, you will have a net gain of over 50% or 5%/year.

The XIU.to has an MER/year of .15%, so that will eat into the returns, but overall, you still have a net gain since the chart below is the current price with the MER/year calculated into the price.

Notice that over the 10 year period, the price moves up and down.  The index never goes to zero.  Furthermore, in the long-term, the index is higher than before.

This is the key of long-term investing.  In the short-term, prices will go up and down.  In the long-term, it will go higher.

There will be periods when a crash happens.  There will be periods where the price spikes.

Technical analysts use technical analysis to find the right time to buy and sell.  In the case of the chart below, EMA 50, 50 day exponential moving average, and EMA 200, 200 day exponential moving average.

Based on the green, EMA 50, and the red, EMA 200, lines, I can see that the stock is trending higher.  Therefore, I will place a GTC, Good til Cancel, order for $23.01.  If the price climbs, I can always increase the price I will pay until I get my shares in XIU.to.

Assuming that the price plummets and I currently own the XIU.to, I will put in a stop-loss order at $21.89 if I am using the EMA 50 or a stop-loss order at $20.49 if I am using the EMA 200.  The stop-loss order is used to ensure that when the stock crashes, you can sell before you lose too much.  Unfortunately, nobody knows how the stock will act; therefore, it can jump back up after your stocks are sold.

You will notice that there are times when the stock goes under the lines.  If the line is trending downwards.  This is a downward trend in the stock price.  If the line is trending upwards, this is an upward trend in the stock price.

Technical Analysts say that the trend is your friend and will tell you if the stock price will be rising or falling.  Therefore, a line going up is a signal that the stock will rise further.  A line going down is a signal that the stock will fall further.

Assuming the stock is in an upward trend in the middle of 2015, I will place a GTC  buy order for $20.01 since that is the price just above the EMA 200.  The EMA 50 GTC buy order price will be about $20.51.

The EMA is the simplest technical analysis tool to buy and sell ETFs.  Professional Technical Analysts look for various technical indicators such as fake break-outs and other signs that may indicate a spike or a crash.

Technical Analysts believe that history repeats when it comes to the stock market.

Charts provided by Google Finance

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