What are 3x Leveraged ETFs?
For savvy traders and investors leveraged exchange-traded funds (ETF) should not be something new. For folks who haven't ventured into trading leveraged ETF yet, A leveraged ETF uses financial derivatives and debt to amplify returns in relation to an underlying index. In simple terms ETF track an index or a bunch of underlying assets (usually a collection of stocks) and they are leveraged by two or three times against the underlying asset which amplifies the gains or losses by that ratio.
For example, let's say you bought XYZ 3x leveraged ETF that tracks a fund with 30 technology companies at $100 and the fund appreciates tomorrow by 3%, your 3x leveraged ETF that you bought for $100 would now be worth $109 while the index would appreciate to $103. On the flip side, if the fund would depreciate by 3% you are going to be looking at depreciation to $91. Ouch!
Why trade 3x leveraged ETF?
One very important thing to understand is that Leveraged ETF are not designed for long term investment. Leveraged ETF lose money over the long term if the price fluctuation is high. So these leveraged ETF I would say is designed for day trading or short term swing trading (2 days to a week) since they re-balance their position daily in addition to amplifying the gains or losses. Wondering what's Flux? More on that below.
In addition, some ETFs are extremely liquid trading over 10 million+ shares and more than 50 million on any given day.
3x leveraged ETF have a wild intraday range or a high Flux as we like to call it. These provide you with ample opportunities to scalp trade for a $.50 to $1 gain or even more at times. Here are the list of top 15 ETF for Feb 28th 2017 in our platform.
Click Here for a free trial.
Flux gauge is used to predict, as accurately as possible, the intra-day % range you should expect of a stock or ETF regardless of price gaps. Its calculated using a weighted average of intra-day price volatility over multiple time frames up to a year. So if a stock or ETF has a flux of 10 then all else constant it's expected to have a 7% to 13% intra-day range the next trading day (10% give or take 3% each way).
To Learn more about Flux and how to use and take advantage high Flux stocks or ETF be sure to watch instructional videos for Flux we created on our howitworks page.
It is equally important to understand the sentiment of the underlying assets these funds track as they move wildly based on news or events and not necessarily on pure technical analysis.
Most often short term trend formation (or momentum) happens due to a news or an event that impacts the underlying assets. For example, any OPEC news moves oil wildly which in turn moves any ETFs that track oil.
Likewise with Gold, Natural Gas, Biotechs,Russia, China, Retail and Financial Stocks, etc... any news that acts as a broad catalyst for the group of stocks or commodities underlying the ETFs can create short term volatility.. and in some cases.. prolonged volatility. This is where our platform shines... it does the heavy lifting in terms of finding the .05% of ETFs out of 1800 that offer the most actionable trading opportunities. Watch our video on how to find, qualify, and regularly review ETFs for daytrading and swing trading.
One Trade Setup
Alright, so I've found a handful of ETFs in BuySellShortCover as my best trading leads let's take a look at one setup in a separate charting tool that I use regularly to trade JNUG (bull)/JDST (bear). Before I start, I want to point out that you can navigate to the following links below to find the underlying assets and investment objective for both of these instruments.
So if we look at the chart below we can see that the junior gold miners made a wild move towards the downside on Feb 27th 2017. It has been a bullish trend since early January as you can notice that Elasticity started to turn positive. Refer the chart annotation for further explanation.
See here instantly.
And conversely... assuming this negative momentum persists in JNUG I want to focus my effort now on playing JDST with a long bias for daytrading.. while staying flexible and open to playing JNUG long quickly in those cases where JDST goes ballistic in the short term. Along with JNUG above, this chart of JDST confirms my strategy.
Learn about them now.
Now that we have an understanding of the short term trend. Let's look at an intraday setup. Since gold is now in a down channel reversal pattern we want to find bullish setup in JDST (3x bear Junior miners).
- JDST made a 20%+ move a day earlier. Pull back is expected most of the times.
- We're looking for a support to form and a higher lows formation.
- Notice slow stochastic move out of oversold condition.
- Multiple moving average (13, 30, 50) crossover takes place.
- Finally a VWAP crossover which is powerful in addition to short term resistance breakout with massive volume.
- We want take a long position here with next near term support (higher lows) as risk.
After the massive spike in volume with VWAP crossover, intraday breakout is inevitable as you see the follow through. After that it's simply managing trade and taking profit.
You can also watch these video series to learn the inner workings of these 3x leveraged ETF and one way to trade them.
One Way to trade JNUG JDST
JNUG & JDST The Lost Secrets Revealed
Find ETFs to trade
Watch this video to learn how to find, qualify, and monitor ETFs to narrow down the 10 best ETFs every week out of 1600 for day-trading and swing-trading.
That's it for today folks. Happy and Profitable trading for the rest of the week!
If you're interested in learning how to find highly actionable trading ideas everyday like the ones in this blog post, sign up for an account at http://buysellshortcover.com, our new idea generation platform. We're currently offering a 30 days free trial.
Feel free to contact us if you have question, comments, or feedback at visiting http://buysellshortcover.com/contact