How to Trade with Sector Rotation

A guest blog by Head Mentor Glenn Sirott.

We all know how the economy moves in a reasonably predictable cycle – with certain sectors flourishing or languishing depending on the cycle. But the stock markets don’t necessarily move in rhythm with the economic cycle. They try to anticipate it.

I’ve always been interested in watching for the tell-tale signs of macroeconomic shifts, and a favorite trade of mine over the years has been based on Sector Rotation.

Sector Rotation is also one of the strategies I like to teach as Head Mentor at WiseTraders, as it fits well with our approach.

WiseTraders’ approach to trading is based on our three Master Keys:

  1. Market Timing
  2. Stock Selection
  3. Trade Plan

How Does Sector Rotation Work?

Sector rotation is an element of Market Timing and is usually defined as the movement of money invested in stocks from one industry/sector to another.

The stock market is broken down into eleven sectors.  By focusing on sectors, investors can identify the ones that are relatively stronger, which will provide the optimal bullish setups.

Market Timing

Market Timing is all about recognizing optimal market conditions to trade, either bullish or bearish. It can apply to the entire market, an important index (like the S&P 500), or even a particular sector.

Big Money will routinely rotate in and out of sectors.

For instance, in a single three-month period recently, the …

• SPDR Energy Fund (XLE- which shows the movement of stocks in Energy related industries) gained around 15%;
• Financials (XLF) rose almost 10% over the same period;
• XLC (the Communication Services Sector) was down 3% during the same time.

The idea here is to identify no-go sectors vs. those that look like they are primed for a decisive move in either direction. Typically, we’re focused on bullish.

Stock Selection

Once we have identified a viable sector, it’s time for Stock Selection within that sector. (Remember the framework … Market Timing, Stock Selection, Trade Plan):

  1. Identify ‘Triple’ AAA (super high quality) setups that are exhibiting at least two of our four ‘Big Money Footprints’.  These show potential position-building activity by big money professional traders.
  2. We can do this in a single click with our TradeFinder filtering software. Our proprietary screeners find the exact criteria we are looking for. You can even tailor your own criteria by amending our own house filters and saving them as your own.
  3. Add your best AAA candidates to a watchlist for further observation until you’re ready to place a trade.

Trade Management

You should only consider the best of the best setups as outlined in our training and mentoring courses.  You can control your entire trade with a conditional bracket order that follows our E.D.G.E trade plan.

These steps will ensure you are in control of your trades from start to finish.

  • Entry criteria. Only trade a confirmed breakout
  • Defense plan. Always place an initial stop loss
  • Growth strategy. Ensure a profit never turns into a loss
  • Exit criteria. Follow a trend for a windfall profit when it happens

Trading Stocks and Options with WiseTraders

As a private investor, you may ask yourself which trading strategies will work best, especially as the headlines of financial news are often conflicting.

For swing traders like me and other WiseTraders members, it’s crucial to be able to cut out the noise and focus on just the best trade setups. In a logical, methodical way.

Sector Rotation can be a powerful part of your overall trading strategy.

Your advantage with WiseTraders is that our trading methods are properly researched and verified by quantitative analysts. Most importantly, we keep it very simple for you.

Our methods are powered by our proprietary, patented indicator, the OVI (Options Volatility Indicator). The OVI gives you a unique insight into potential position-building activity by the “Big Money” professionals (hedge funds, large investors, etc).

The idea is simple. These guys put extraordinary amounts of resources into their research. And then they invest money in large amounts – billions of dollars go into building or protecting key positions.

By following their leveraged position-building activity we get to hitch a ride on all that research … for free!

Simply put, there’s no better way for you to follow a high-probability strategy, like Sector Rotation, and stay in control of trading decisions.

Discover more about our unique stocks and options services here.

Stay well and trade well.


PS. If you’re interested in any of our OVI trading services for stocks or options such as a fast-track mentorship or workshop event, book yourself an appointment here to speak with us. Many of our members aren’t aware of all the services we offer to help you become an established consistent winner with the OVI. Remember, everyone is an individual, and we ensure that we can cater to you and your particular needs.

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