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Only ETF Fools Rush In

|Includes: AND, Invesco DB Oil ETF (DBO), EGPT
Due to the recent geopolitical events in the Middle East and the subsequent impact on plenty of ETFs, now is as good of a time as any to rehash perhaps one of the most important rules of trading and investing. That being: Emotional control. Perhaps you've heard the expressions "don't let a trade turn into an investment" and something along the lines of not becoming married to a losing investment to the point where losses are starting to pile up.

Both adages are worth remembering and they are relevant to my own personal addendum, which is "Only ETF Fools Rush." Obviously, I'm biased because I'm the one dispensing the advice, but I think it is particularly relevant given all the calamity in the Middle East and the impact those events are having on an array of ETFs.

Many ETFs by their very nature can prove to be event-driven instruments. In terms of recent events, we've seen this with country-specific funds and at the sector level, we've seen this scenario play out with oil ETFs. Here two examples, one real and one hypothetical about why it pays to wait on certain ETF trades.

On Monday night, oil futures were trading lower in the electronic trading session. A look at the chart for West Texas Intermediate Crude showed the April contract was close to dipping into a previous technical channel and giving back some of its recent gains. That would indicate it was a good idea to short oil, but had you rushed into that trade Tuesday morning using the PowerShares DB Crude Oil Double Short ETN (NYSE: DBO), you would have absorbed a loss of more than 5% in just one day because oil prices moved higher on Tuesday.

Here's a hypothetical example, but I get the feeling it's going to prove accurate. The Market Vectors Egypt ETF (NYSE: EGPT) is currently trading above its net asset value, perhaps bid up in anticipation of Egypt's stock market reopening on Wednesday. Rushing into EGPT before Egyptian stocks start trading again could prove extremely foolhardy. Why? No one has a crystal ball to show how Egyptian equities are going to perform this week, next week, etc. If those stocks open down, EGPT is going to get smacked. Just look at how volatile this ETF has been recently. Do you really want a piece of it on the first day Egypt's major exchange is open for business after a layoff?

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The lesson of rushing in is one I also applied in a previous post about new ETFs and with some exciting new ETFs recently making their debuts, it is worth remembering that we don't need to be among the first to own these funds. Personally, I'm intrigued by the new Global X FTSE Andean 40 ETF (NYSE: AND), which is the first ETF to offer simultaneous exposure to Chile, Colombia and Peru.

If this was June 2010, I probably would own this ETF right now and would probably have it in the ETF Profit Report portfolio. However, times change, and emerging markets have lost considerable luster in early 2011. I think that will change for the better later this year, but the point is we don't need to own AND now when we can probably get a better entry point in a few weeks.

Sometimes waiting things out with ETFs is your best and most profitable move.

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