Applying the 200-Day Moving Average to Leveraged ETFs
As you have seen in Short Term Trading Strategies That Work and High Probability ETF Trading, (both now available in paperback) the 200-day moving average is a statistically-backed, excellent indicator to keep you trading on the right side of the market in both stocks and ETFs.
Though this has been shown to be true going back in nearly 20 years of market research, it should not be applied to derivative products such as leveraged ETFs. As we’ve published in our research study on leveraged ETFs, they can tend to be a wasting asset, especially in highly volatile markets. Therefore while a 1x ETF is rightfully above its 200-day ma, its 2x counterpart can be below. Why? Because along the way over the past 200 days the price of the 2x eroded enough to push its price under the 200-day.
In order to properly trade leveraged ETFs, focus on the 1x first. Based upon where it is in relation to its 200-day is the direction where you should be focused on with its leveraged version.
Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.