Traders and active investors who use PowerRatings to help spot the best leveraged and non-leveraged exchange-traded funds to trade every day weren’t the only ones taking a recent interest in the ProShares UltraShort Silver ETF (NYSE: ZSL). No less than Larry Connors himself, founder of TradingMarkets and Larry Connors Daily Battle Plan, had highlighted the ETF a few days ago as one that subscribers to his daily ETF trading service should keep an eye on.
Shares of ZSL had been trending lower in earnest since the beginning of the year, as buyers became particularly aggressive for not just stocks, but precious metals, as well. This buying in precious metals – and precious metals ETFs – meant that inverse or short funds like the ProShares UltraShort Silver ETF were moving lower, and becoming more and more technically oversold.
Earning “consider buying” ratings early in the second half of February, ZSL truly became a target for high probability traders when it earned an upgrade to 9 out of 10, a level within the “consider buying” category where even more conservative traders using PowerRatings feel comfortable wading in to waters.
Emphasis on “wade”. As we have pointed out from the beginning when it comes to our ETF of the Week series, wading into a position (as opposed to jumping in all at once) is a quantified way to potentially lower your cost basis as a short-term trader, as well as increase your per-trade accuracy rate. And by “wading into a position” or, more properly put, “scaling-in to a position” short-term traders and active investors in ETFs often accomplish both.
The simple scale-in strategy that has been a staple of our ETF of the Week has been to buy a half position on an initial ratings upgrade to 9 out of 10, and then to buy the second half of the position on either a lower close or a ratings upgrade.
Here, in the case of the ProShares UltraShort Silver ETF, the fund did not make its lower low or earn a ratings upgrade until three days after it had earned an initial ratings upgrade to 9 out of 10. But, as the chart shows, this meant adding a second half at a dramatically lower level compared to the first half.
With a full position in ZSL, traders did not have to wait long to lock in gains. Whether a close above the 5-day moving average or a close with the 2-period RSI over 70 was the dynamic exit of choice, the sharp gains on the final trading day of February helped the fund meet both moving average and RSI criteria, guaranteeing that traders who had picked up shares of ZSL on weakness would be exiting those shares, profitably, on strength.
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