I think following is a strategy to trade all these leveraged ETFs. This strategy is contributed by a trader friend. With his consent, I post it here so others can benefit from it too.
When you’re trading ETFS, find out what the components are and watch those and the news as indicators on your entries and exits. A lot of ETFs are administered by http://www.proshares.com/, it’s easy enough to find which stocks they are comprised of and what % those play. It changes a bit every so often but it’s a really helpful indicator.
If you’re trading SRS, watch SPG in particular but also know that:
Simon Property Group Inc. 6.82%
Public Storage 5.87%
Vornado Realty Trust 4.99%
Annaly Capital Management Inc. 4.90%
Equity Residential 4.64%
HCP Inc. 4.03%
To effectively trade SRS, open two level two boxes, one with SRS the other with SPG. Study the T/S, watch what each do in relation to the other. Open a chart and overlay SRS and SPG. Finally, if your trading platform allows you to follow spreads, create a spread between SRS and SPG and watch those. It takes a day or two of a somewhat intense study, but once you’ve figured out the relationship between the two, you can makes piles of money trading SRS.
The same stands true for FAZ, although it’s not a proshare and it’s harder to find information on it. I’ve watched it for a while and find that following JPM is the most accurate way of understanding what FAZ will do.
Do not swing these and make sure you have tight stop losses in place and honour those stops. I’ve watched SRS move $20 in a day, you really don’t want to be on the losing side of that. It’s much better to lose an opportunity than lose the money.
Of course, you still need to combine this strategy with your risk control and exit strategies .
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