Some of my preliminary analyses and observations how to possibly utilize the 3xETF Pair Trades.
>> TQ/SQ Weekly: https://drive.google.com/file/d/0B9dBZPXNckXYb2ZXN3FhTlotdGM/view
Primary obstacles for newbie traders:
- 75% lose money on first 6 years, and
- 10 to 15 years to develop a Trading System.
Learning curve on how to make money off the markets is very steep and in most instances extremely expensive. Many brokers provide simulated trading but I doubt anybody would do that long enough to become proficient before using hard cash. Once hard cash goes on line, that's the time that emotions would kick in hard and most, if not all those simulations would not help much.
Using say TQQQ/SQQQ Pair Trade has a better chance of $survival and possibly make some money even for short-term traders. If the pair trade does not make money immediately, then no problem, just hold on tight. Sooner or later the markets will either rally or collapse. And the pair trade will make money due to 3x compounding effects. The harder they rally (or collapse) the bigger the compounding effects.
>> TNA/TZA Monthly: https://drive.google.com/file/d/0B9dBZPXNckXYdEJMU3RKR1BCVzQ/view?usp=sharing
>> FAS/FAZ Monthly: https://drive.google.com/file/d/0B9dBZPXNckXYUGswUzFfZDlyYm8/view?usp=sharing
With those massive hundreds% rallies for 3xETFs such as TNA, too easy to get tempted and trade TNA instead. But when they collapse like that of -72% crash in May to October 2011, I doubt if many can hold onto their positions. Too easy to lose money trading TNA, SPXL, TQQQ or TZA and other leveraged ETFs for that matter.
Pair trades don't seem to work well to the downside. Still a mystery for me to understand at this stage. But far better than losing money or just holding cash. Also better than buying treasuries or bonds. And even dividend stocks for that matter on the short-term to medium-term basis. On the long-term such as the massive cyclical rally from March 2009, buy and hold of 3xETF Pairs proved far better than the averages.
TNA/TZA Pair illustrates what could happen if a trader successfully made four (4) swing trades capturing only half of profits on each. There were about 12 potential swing opportunities but then nobody is perfect. Then re-balance them each time and adding those profits as if like DRIP style. Not bad at all compared to Russell2000.
Of course, holding them for years on ends of rallies since March 2009 produced the best compounding effects. But then nobody knows what the future holds in the first place. Far too many were panicking in late 2008 to early 2009 specially retail investors. Big boys like Warren Buffett were scooping up bargain-basement prices. They've got the reserve money, the manpower, and other resources for such once-in-a-lifetime buying spree.
I myself started buying in February 2009 and by the time markets bottomed out in March 6, 2009; those I've bought in early February had already collapse very badly. For example, I kept buying TEN in Feb/March 2009 from $4 to 69 cents (67 cents bottom). How's that for 83% loss in just few weeks from $4 buys? That kind of collapse is what I usually expect each time I traded a penny stock - long ago when I was still a newbie trader.
8+ years of cyclical rally from March 2009 = Time to speculate.
Charts are available @ We Are the Champions blog.
- If Strategic Plan A is going to happen, then SnP500 should produce a teal IV-th wave down of perhaps 10 to 20% correction lasting 2 to 4 months comparable to the II-nd wave. Then another 82% rally for the V-th wave becomes possible. 3xPairs should perform very well if that 82% rally from March 2009 to April 2010 got replicated at the top of the I-II i-ii-iii-iv-v -III-IV-V cyclical rally illustrated on Plan A;
- If the Trump Stimulus Program materialize sooner than expected, then probability of Alternate Plan B on the monthly chart becomes very much feasible. Otherwise;
- Perhaps Plan C can happen sooner than expected. Probability is not far from Plan A and must not be ignored. A cyclical correction of 25% to 40% lasting more or less 3 years cannot be discounted. And that's where the 3xETF Pair Trades would produce outsize gains - to the downside of course.
For me; I am going to buy some TNA/TZA and FAS/FAZ Pair Trades sooner rather than in the weeks and months ahead before the year is over. With the previously bought SPXL/XU and TQ/SQ; I should be able to allocate at least 20% of portfolio for pair trades. With so much excess trading profits last year and this year; more likely I'll also deploy them to pair trades since I'm fully funded for next year's expenses. No need to keep cash sleeping on the sidelines.
Primary objective is that IF and WHEN that cyclical correction of possibly 3 years duration and 25-40% discount happens; I will re-balance all those 3xETFs and hold about half of them for possibly another 5 or more years of rally, the other half for swings and medium-term trades (those bought using trading profits). If markets keep collapsing and we suffer another episode of Great Depression, then I'll keep holding those 3xETF pairs and hopefully be able to make some money to the downside as well.