Every time I write an article on trading leveraged ETFs, there's always someone who tries to twist what my goals are and make it about themselves and their past experience of failure in trading. Yet if you follow the comment section of my Seeking Alpha articles, you'll see that we consistently make money. And yes, we have fun doing it. We are there to help each other profit. What hasn't worked for some in the past can be turned around. It's the glass half empty or half full dilemma. I want you to always see the glass 3/4 full, not dwell on failures of the past.
An investment in knowledge pays the best interest. - Benjamin Franklin
Why Do Most Investors Fail At Trading
When I first started trading in 1999, I would go for the 1/16, 1/18 or 1/4 scalps and go for the quick profit and do it multiple times a day. I got decent at it but would go away from my trading plan of scalping and buy a stock that I thought was going to go up and hold onto it as it went down and add more shares and next thing I know I lost all I had gained from scalping profits and more. I thought I was right and the market was wrong. Of course we all know the market is never wrong. This is the emotional investor gone rogue and allowing their ego to take control of their intelligence. It's also a trader without discipline or without a plan. Most of us when we start our trading, experience some sort of loss because we don't know what the heck we are doing. You can't get to profitability and a good understanding of the markets by just reading one book. In 1999 I had 13 years as a financial advisor under my belt and it didn't help me beat the market makers.
I personally set out on a journey of discovery after my first experience in trading and the dot com crash that resulted in me learning more about the economy, our monetary system and investing and also something new called ETFs. There were very few in the U.S. who knew anything about ETFs back then and I reached out to a fund manager named Wilfred Hahn who is now with Forstrong Global Asset Management out of Canada. I was going to introduce his ETF only separately managed account to those in the U.S. In hindsight, it would have been a good time to do so, but through myself discovery I also was reading more and more about gold in the early 2000's and had joined Richard Russell's Dow Theory Letters and became a believer in gold.
To make a long story short and 18 years since my first real day trading experience, and after reading of 100's of books (before Google so they were hard copies) I have since started a gold business and written a book on gold and wrote a book on investing and started a ETF Trading Service. The second book, Illusions of Wealth, opens the minds of investors to alternative thinking that Wilfred Hahn had 2 decades ago which includes investing in ETFs as well as my favorite, leveraged ETFs. I couldn't have accomplished all of the above without taking the time and researching the industry, but also being able to step outside the financial services industry and look in.
We were never taught as advisors anything about gold investments and gold was never given any thought until 2006 when the ETF GLD first appeared. And we also were pushed to sell mutual funds and ignored ETFs. There was big money in mutual funds and those were pushed on advisors by the people who wined and dined us and they still do today. You won't find too many who push ETFs on advisors but it is an expertise that some of us who have been through the financial advisor system can utilize to help investors profit in up or down markets.
We have seen fractional trading give way to digital trading now and the easy money scalping of those fractions is more difficult when you are down to pennies of profit. But one thing that hasn't changed is the investor's inability to learn how to take control of their investing and profit for themselves.
Take Control of Your Investing
If you are the type of investor who has some wealth and want to take control of your investing future, then you need to have a plan. The old days we had to read books on trading, but today you can watch videos and learn much faster. I can't go into all the ins and outs of setting up your online trading platform, but you must do one thing and that is have a Level 2 screen where you can see the bid and ask price action for what you are trading. You also through your online broker need to see the charts of what you are trading to give you a snapshot of where you are and set up moving averages to know the trend.
I can look at my list of leveraged ETFs and know what I want to trade just based on price action and a quick glance at a chart and knowing the trend is with me for the day. If the trend is up and my ETF is positive for the day, then odds are I will profit. But most investors get lost in the technical analysis of it all. While I may have some secret indicators that help me with timing, anyone can watch some videos and get good at trading just by using the EMA 8 crossing the EMA 20 for the day and also the golden cross of the 50 and 200 day moving averages.
But taking trading to the next level is where the real fun comes; trading leveraged ETFs.
Trading Leveraged ETFs Can Help You To Easier Profits Without the Fear of Losing Your Shirt
Trading leveraged ETFs isn't for everyone. If you go at it without any discipline or are an emotional person, this type of trading is more than likely not for you. I would be the first to tell you that you're not cut out for this. But I also think if you can control your emotions, and use some Trading Rules, you will come out ahead.
I'll add another Trading Rule to help you and this one counters all of the buy and hold advice you have received over the years. The reason we don't buy and hold leveraged ETFs, is 1. the depreciation and 2. they always reverse. We hold these for the day, a few days and sometimes longer if the trend is powerful. We don't hold leveraged ETFs for months at a time, but we can trade in and out of a powerful trend for profit several times. Why don't we hold for the long term? Because I know I can lock in profit and get back in again rather than ride down a 10% or more pullback? Why would you ever want to give up 10% on a pullback when you can just keep a stop and have a plan to get back in?
New Trading Rule for You: Take Profit
This is straight out of my list of Trading Rules; Go for singles and doubles if just starting and get used to the service. The triples and home runs will come. If you have had a nice run higher with an ETF, don't hesitate to take profit, especially if you are not used to making good profits. I have a standing rule that once you earn 10% on an ETF, especially if it was in one day, to take profit. How often do you get a 10% or more return on an investment in a day or week? You can start with a standing rule of taking profit at 5%. Lock in the profit on 1/2 shares and use a trailing stop on the remaining shares. Don't be a Monday morning quarterback and question the strategy that you got out too early and it went up another 10%. Another nice trade is always around the corner. Just be patient for it as it will come just as reversals always come.
The key here is the strategy to take profit on half shares after you are up a certain percentage. Then you are always playing with their money and you can't lose when you at the same time move your stop to a trailing stop or keep your entry price as your stop. This is how you make trading fun again. You have a plan and you trade your plan.
Update On Last Week's Trades and What's Coming This Week
The following were the actual results for 5/29 - 6/2. Please notice the 1/2 share strategy we use to lock in profit. It works! (Yellow means a trade we were in from the prior day). I keep tweaking the Trading Rules to make things better and so far so good with the changes.
This past week was great for trading but for the coming week expect some churning of accounts as we prepare for the following week's Fed announcement where they will raise interest rates by 1/4 point. From that point on my speculation is you better be in gold, silver and gold mining stocks and look at possibly going with the short the market ETFs (sell the news).
I still lean short mining stocks for the coming week and we have done well with (NYSEARCA: JDST) and (NYSEARCA: DUST) until Friday. My trade of the week the last two weeks before the week started was DWT and we did well. This week it is more difficult to call a trade of the week but it might be (NYSEARCA: TNA), at least until Friday.
Come Friday we will have the re-balancing of (NYSEARCA: GDXJ) and this will affect the future profit potential of (NYSEARCA: JNUG) so until the dust clears on this I recommend only trading (NYSEARCA: NUGT).
We are seeing the bull come back for stocks with higher highs in the stock market. It was surprising for me to see such lousy unemployment data come out and even a revision lower of last month's data and the stock market zoom higher. This is the part where those who think one way lose their shirt as they bet against it by holding on to a losing position. Don't be that trader. Keep a stop and follow the trend. Hold onto your shirt!
We are somewhat neutral going into next week as the Fear/Greed Index is only slightly positive. I won't go overboard on any long the market ETFs heading into next week and would take profits quicker.
I don't think you will find any perfect system out there to trade, but for you to be a good trader you have to start out by trying to understand the basics first. You just can't jump in and think you'll make money. But you can learn from the millions lost by many investors who have made the mistakes and increase your chances at profiting. Remember, most mutual fund managers and hedge fund managers can't beat the market. If trading in and out isn't for you, buy index funds and asset allocate. For the rest of you, take control of your investing futures and make trading fun again!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.