Find the Winners in the Sea of ETFs

Short and ultrashort exchange-traded funds are dominating the list of top performers in that huge market segment. But which ETFs catering to buyers have withstood October's perfect storm of selling pressure? These resilient issues could lead the way during a recovery rally, or whatever upside the market might offer in coming weeks.

ETFs of all stripes have become tough plays for at-home traders and investors in recent months. Electronic algorithms dominate these highly liquid instruments, making them jump around like pogo sticks, even in relatively quiet sessions. Add in historic volatility, and few warm-blooded players have the brainpower needed to pick out low-risk entries.

Two simple techniques will lower risk when trading these crazy instruments. First, reduce position size and hit for extra bases, rather than quick scalps. Second, use limit orders for all entries, scaling in when the fund moves against your intended direction. Then follow your last entry with a tight stop loss that will take you out of everything, all at once.

Index ETFs may be a better choice than sector or country funds in this wicked bear market. These funds move a tad slower than their cousins in the futures markets, despite broad daily ranges. In addition, they're technically oriented markets that respond well to classic trading techniques, like buying pullbacks and selling filled gaps.

Finally, trade baskets that cover a wide range of disparate market themes. This approach, when proper applied, will reduce risk and let you take advantage of volatile moves without losing too much sleep. Just choose wisely, because algorithms flow through hundreds of ETFs simultaneously, and too many eggs in the wrong basket can incur fast pain.