I spoke with a subscriber this week, an accountant and a careful, analytical investor who values businesses on their fundamentals. His question was a good one: “How do you value an ETF?”
It’s the right question to ask, and the answer explains why I lean so heavily on technical analysis when I buy ETFs. Fundamentals help you decide what to own. For ETFs especially, price and volume tell you when.
You can’t really value an ETF the way you value a company: its price simply tracks the value of what it holds. So instead of asking “is it cheap?”, ask “is it moving from a base into an uptrend?” Check the market is healthy, wait for one of three base setups (bottoming base, DTP or breakout with pivot), buy as price breaks a clear pivot, and set your stop before you buy.
Can you value an ETF?
Not in the way an accountant values a business. An ETF is a wrapper. Its price is anchored to its net asset value (NAV), the value of everything it holds, and market makers keep the two closely aligned throughout the day. So an ETF is almost never “cheap” or “expensive” relative to itself. You pay roughly what the underlying holdings are worth.
You can look through to the holdings: the aggregate price-to-earnings ratio, dividend yield or earnings growth of the index. That’s useful context. But it has limits:
- “Cheap” can stay cheap for years. Markets that look inexpensive on paper can keep falling while the money goes elsewhere. China and Hong Kong in 2026 are a good example.
- Thematic ETFs rarely look cheap. AI, cybersecurity or rare earths are priced on growth that may be years away, so traditional valuation often says “never buy”.
- Commodities have no earnings at all. Gold, oil or copper ETFs can’t be valued on a P/E; their prices are driven by supply, demand and money flows.
- Valuation tells you little about timing. Even if something is undervalued, it doesn’t tell you whether it will rise next month or in three years.
Fundamentals tell you what, technicals tell you when
A chart is a record of every buying and selling decision made by every investor, including the large institutions whose money actually moves prices. When big money starts accumulating an ETF, it shows up as price holding firm, a base forming and volume picking up on up days. When it’s leaving, you see lower highs and rallies failing.
As I say in the video, timing isn’t about being perfect. It’s about being patient enough to wait for evidence. The goal isn’t to buy the bottom or sell the top; it’s the best risk-adjusted entry with the greatest chance of success.
That’s why I use fundamentals and themes to build a watchlist, and technicals to decide when to act. A great story without the right price action is just a story.
Standing on the shoulders of giants
None of this is my invention. The base and trend approach adapts the work of some of the best-known growth investors, whose books I’d recommend to anyone wanting to go deeper:
Buy as price breaks above a pivot from a sound base, ideally on rising volume; respect the general market’s direction; cut losses quickly (his rule is 7–8%).
Only buy in an established uptrend (his “trend template”, including price above a rising 200-day average); the volatility contraction pattern (VCP); define your risk before you buy.
The four stages: basing, advancing, topping and declining. Buy early in stage 2, avoid stage 4, and watch the 30-week moving average.
Their research was mostly on individual stocks, but the principles carry over well to ETFs. In some ways they work even better: a diversified ETF can’t go to zero on one bad earnings report, and themes and regions often trend for months or years once institutional money commits.
The four stages: where is the ETF now?
Every market moves through the same cycle. Stan Weinstein described it as four stages; I call it base and trend. Zoom out on almost anything, from Croc shoes and comic books to tulips in the 1600s, property, Bitcoin or gold, and you’ll see it: a period where nothing much happens (a base), then a period where everyone wants in (a trend).
We want our money in stage 2, ideally entering near the start, as price breaks out of a stage 1 base. We don’t want money sitting in long stage 1 bases doing nothing, and we never want it in a stage 4 downtrend. My rule of thumb: nothing good happens under the 200-day moving average.
The first sign something is changing
In a downtrend, the first hint of a turn is a higher low: the next pullback doesn’t break the previous one, as sellers run out of energy. In an uptrend, the first warning is a lower high: the next rally fails before the last peak. Either way, a base usually comes next.
Moving averages: is the stack building?
The 20-day (about four weeks), 50-day (about a quarter) and 200-day (about a year) averages show the price recent buyers have paid, and institutions watch the same levels. When they’re stacked (20 above 50 above 200, all rising), every buyer over the past year is in profit and there’s no trapped supply weighing on price. When they unstack, the trend is breaking. We wait for the stack to build before buying.
Step 1: check the market first
O’Neil found that most stocks follow the general market, and the same is true of ETFs. Breakouts work far better when the overall market is healthy. Each week we check our Market Health-O-Meter: 17 ETFs across Australian sectors, global regions and themes against their 10, 20, 50 and 200-day moving averages. When most are above all four, conditions are healthy. When weakness spreads to the longer averages, we get defensive.
Example reading from October 2026, for illustration. Subscribers get the updated reading every week.
Sometimes the right answer is to wait. Cash is a position. (Read 7 ETF investing lessons.)
Step 2: the three base setups
As an ETF moves from base to trend, there are three patterns we buy from. They often appear in sequence: earlier entries offer more upside with less confirmation; later entries offer more confirmation but give up some of the move.
The pivot is the key level in each: usually the high of the latest tight consolidation. It gives you three things in one number: a trigger to buy, a level to set your stop and a way to measure risk before you invest a dollar.
For a step-by-step walkthrough with charts, read the base and trend method.
Historical examples
Here’s how these setups have played out on real ETFs. Including one that didn’t work is important: no setup succeeds every time.
Members can see these with full charts on our Chart Setups page.
Step 3: know where you’re wrong before you buy
This is where technical analysis really earns its keep. Before entering, we decide where we’ll exit if the setup fails, usually just below the pivot, the shakeout low or a key moving average. Like O’Neil and Minervini, we keep that stop tight: around 7% or less from entry. If the nearest sensible stop is further away, we wait for a better entry rather than force it.
Why small losses matter: the maths is asymmetric
Losses and gains don’t work the same way. Lose 50% and you need a 100% gain just to get back to where you started. The deeper the loss, the faster the recovery hurdle climbs.
Put simply: $10,000 that falls 50% to $5,000 has to double to get back to $10,000. That can take years, and some investments never get there. A 7% loss, on the other hand, needs only a 7.5% gain to recover, which one good trade can do.
False breakouts are part of the game
Not every breakout works. Sometimes price breaks above the pivot, looks strong, then slips back into the base. That’s often trapped sellers: people who’ve sat in the base for months finally getting out at break-even. It usually just means the base needs more time, so keep it on your watchlist. The stop isn’t there because you expect to be wrong; it’s there because you know you can be.
Combine a tight stop with sensible position sizing and a single failed trade does limited damage, while a trade that works (like XMET) can run for months. That asymmetry, small losses and bigger wins, is what makes the approach work over time.
When to buy an ETF: a checklist
- Is the market healthy? Check broad conditions first.
- Do you want the exposure? A theme, region or asset you understand, checked under the hood for holdings, fees and overlap. ReviewETF helps here.
- What stage is it in? Avoid downtrends; look for a base turning into a trend.
- Which setup? Bottoming base, DTP or breakout with pivot.
- Where’s the pivot? Buy as price breaks above it, ideally on stronger volume.
- Is it extended? If it’s already well above the pivot, don’t chase. Wait for the next setup.
- Where’s your stop? Set it before you buy, ideally within about 7%.
- How much? Size the position so a stopped-out trade is a small loss to your whole portfolio.
Only enter if the setup triggers. A watchlist isn’t an entry. A theme isn’t an entry. A prediction isn’t an entry.
Where fundamentals still matter
Technicals don’t replace homework. Fundamentals still decide what goes on the watchlist: whether a theme has a real long-term driver, what the ETF actually holds, its fees, structure, currency exposure and whether it overlaps with what you own. And for your long-term core, a low-cost diversified ETF you add to over time, timing matters far less. The base and trend approach matters most for satellite positions, where entries and exits make the biggest difference. (See How many ETFs should you own?)
So to answer my subscriber’s question: you value an ETF by understanding what’s inside it. You time it by watching what the money is doing.
General information only, not a recommendation to buy or sell any ETF. Technical analysis is one approach among many and does not guarantee results; setups fail and stops may not limit losses if prices gap. Examples show past price moves and are not a reliable indicator of future performance. Book references are for further reading and do not imply endorsement by their authors. Consider your objectives, financial situation and needs, and read the PDS, before investing.
Frequently asked questions
Why do losses matter more than gains?
Because the maths is asymmetric. A 10% loss needs an 11% gain to recover, a 20% loss needs 25%, and a 50% loss needs 100%. Keeping losses small with a stop-loss keeps them easy to recover from.
How do you value an ETF?
An ETF’s price tracks its net asset value (the value of everything it holds), and market makers keep the two closely aligned, so an ETF is rarely cheap or expensive relative to itself. You can look through to the holdings’ valuation, such as the index P/E, for context, but that tells you little about when to buy.
How do you know when to buy an ETF?
One approach is to check the overall market is healthy, then wait for the ETF to move from a base into an uptrend, buying as price breaks above a clear pivot level, ideally on stronger volume, with a stop-loss set before you buy.
What are the best books on timing stock and ETF entries?
Popular books include William O’Neil’s How to Make Money in Stocks, Mark Minervini’s Trade Like a Stock Market Wizard and Think & Trade Like a Champion, and Stan Weinstein’s Secrets for Profiting in Bull and Bear Markets.
Does technical analysis work on ETFs?
The principles of base and trend, pivots and stop-losses can be applied to ETFs, and diversified ETFs avoid single-company gap risk. On-screen ETF volume can be misleading because of market makers, so it helps to also check the underlying market. No method works every time.