Teeka Tiwari

Finding the Best ETFs to Trade

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How to Indentify the Strongest Sectors

What I like to do during times like this is to compare the relative performance of multiple sectors over the recent down period.

My first sectors to investigate will be those that are actually showing gains for the period. Now, in a broader market sell-off, typically all sectors will be showing losses. If that is the case, I look at those sectors that are showing the smallest losses.

What we are doing, of course, is analyzing sector relative strength. We are determining which sectors are outperforming other sectors on a relative basis.

Using ETFs to Track Sector Performance

But how do you measure a sector's performance?

This is where exchange-traded funds (ETFs) really help out in the analysis process. You can use ETFs as sector trackers that will give you a "pulse" on how one sector is doing versus another. (Learn five advantages ETFs offer.)

You simply find a well-diversified ETF that represents each of the major sectors. Then you compare their percentage gain performance over a standard period of time.

Which ETF Should You Buy?

But let's say that you've now found a sector that you want to buy, but the sector has 20 ETFs covering it. What should you do?