Did you buy FAZ around 30, 20, and 10 thinking it was cheap? Did you not cut your losing FAZ position in a timely manner? If your answer is “Yes”, then you are in deep doodoo. These leveraged ETFs are not meant for the “buy and hold” strategy. They are for day trading. I know you did not want to hold it. You wanted to make some quick dollars but FAZ moved in your opposite direction. Now you are holding a bag due to your hesitation to cut losers.
When I started out trading, I was a bag holder for a while too. I remember I shorted HANS around 80, when it moved from 4 to 80. I held the bag so firmly that I lost 50% on HANS. So it is OK to be a bag holder when you just start out. As long as your account is not totally destroyed yet, you might come back one day. But you will have to learn from your mistakes. Let’s take a look at your mistakes.
1: buy and hold a leveraged ETF as if it were an investment grade stock
2: ride your losers for as painfully long as possible
Do we have a solution to your current deep losers? Yeah! Forget that you bought FAZ/SRS around 30, 20, or 10. Take Friday’s close price as your entry price. For example, on 6/05/2009, FAZ closed @ 4.47. That is your entry price. Set a stop loss no more than 10% and do not touch it. Then, set a profit target like 25% or 30%. If it drops and triggers your stop loss, you are out. If it moves up to your profit target, you are out. That is how I would handle it.
After you are done with it and have learned something worthwhile about trading, you can chalk it up as a tuition.
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