The ETF Trend Following Playbook: Profiting from Trends in Bull or Bear Markets with Exchange Traded Funds

Chapter 7. Navigating U.S. Markets

When you’re on the hunt for trends, one of the easiest ways to start is by looking at the major market indexes in the United States.

The Dow Jones Industrial Average (DJIA) is the barometer for the U.S. equity markets and is monitored daily by investors around the world. But the Dow is made up of only 30 stocks. While it’s the best-known index, it’s far from diversified. If you were looking for a better representation of U.S. stocks, you might pick the S&P 500, which is a large-cap value-weighted index, or the Russell 2000 index, which is a small-cap index.

There are many years when smaller companies perform better than large, established companies because they are more nimble and can better react ...