4.1 Why Technicals Matter in Satellite Trading
Your core sleeve relies on fundamental forces—broad market growth. But your satellite sleeve functions on timing: entering mediumswing ETF trades when momentum or price structure lines up. Technical indicators help you see when a sector or theme is gaining short‑term traction, without relying on gated research or paid signals.
Moving averages (20-, 50-, 100-day) identify trends and potential support/resistance.
Relative Strength Index (RSI) spots overbought or oversold conditions (typically >70 or <30).
Volume structure and chart patterns—breakouts on high volume, bullish flags, consolidation ranges—hint at upcoming moves.
Average True Range (ATR) sets logical stop-loss and target levels based on recent volatility.
These tools give you a disciplined signal-confirm-trade framework for your 20% satellite sleeve, without chasing every headline.
4.2 Moving Average Crossovers
A 20-cross-50-day EMA crossover often signals short- to mid-term shifts—ideal for swing setups.
Confirm strength via RSI > 50 and volume increasing above average ×1.2.
Only trade when ETF’s volume is at least 50% above its 30-day average. Illiquid funds can trap capital or spike spreads.
This aligns with a more systematic methodology used by many hedge funds layering technical filters into sector rotation strategies.
4.3 RSI Divergence & Reversion
When an ETF makes a new low, but RSI holds higher than before, that’s a bullish divergence—a sign of underlying strength. Many traders use this to enter near the cycle trough.
Buy signal: RSI <45 hitting new lows on price while RSI prints higher lows—enter on reversal candle.
Stop-loss: ~ATR below recent low
Target: Recent high or 2 × risk distance
This technique adds a second technical layer next to moving averages to improve entry confidence.
4.4 ATR-Based Stops & Position Sizing
ATR reflects average daily movement; use it to size trades:
Compute current ATR (14-day).
Decide acceptable loss per trade (e.g. 1.5% of total portfolio).
Position size = (Portfolio value × 1.5%) ÷ (2 × ATR).
Double ATR covers false breakouts【href】.
Adjust stops = entry price ± 2 × ATR
This ensures every trade risks the same % of capital, regardless of volatility.
4.5 Volume & Breakout Confirmation
Breakouts without volume often fail. You want ETFs breaking past resistance on 1.2–1.5× average volume, ideally swelling during the break.
Use breakouts of recent highs or consolidation zones.
Avoid pseudo-breakouts during low-volume sessions or irregular liquidity days.
This follows research that hedge funds emphasize execution quality and liquidity for satellite plays.
4.6 The Complete Signal Workflow
Scan satellite ETFs with price above 20-day EMA; RSI between 40–60.
Spot valid crossover or RSI divergence + breakout on volume.
Calculate ATR-based stop and position size per 1.5% risk rule.
Enter on next candle open or towards the intraday breakout.
Track trade daily, move stop to breakeven when 1× ATR covered.
Scale out at 2× ATR (target) or trailing stop if trend continues.
4.7 Practical Example
Suppose you monitor a technology sector ETF trading at €100:
ATR (14) = €2
Entry ±20-day EMA crossover at €100
Position risk: 1.5% of €10,000 account = €150
Stop = €100 – (2 × €2) = €96
Risk per share = €4 → Size = 150 ÷ 4 = 37 shares
You enter 37 shares at €100, set stop at €96. If price hits €104 (1× ATR), move stop to breakeven. Exit part or all near €108 (2× ATR), lock in ~8% gain.
4.8 Action Steps for Chapter 4
Add EMA(20), EMA(50), RSI(14), ATR(14) indicators to your charts.
Identify 3–5 satellite ETFs from Chapter 3.
Scan daily for valid crossover + volume breakouts or RSI divergences.
Paper‑trade 2–3 setups using ATR-based sizing & risk rules.
Record trade results, including entry, stop, target, and outcome.
Not Financial Advice
This article is for informational purposes only and does not constitute financial advice. Always conduct your own research before making any investment decisions.
