How I Stopped Worrying and Learned How to Trade Leveraged ETFs: SPY, UYG, SSO, TZA, FAZ

With markets moving sharply lower late in January, leveraged inverse ETFs like the ^SKF^ and the ^SSO^ have been soaring. At the same time, leveraged ETFs like the ^UYG^ became increasingly oversold.

As a short term trader looking to take advantage of extreme conditions in leveraged ETFs like these, what’s the next move? Time to sell? Or time to buy?

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More and more short-term traders are turning to leveraged ETFs. There are three reasons why.

Leverage: Two to one or even three to one leverage means that traders can use less capital to express their market opinions. Rather than being forced into the options market or the futures market, traders who use leveraged exchange-traded funds can take advantage of many of the same benefits of options and futures, without some of the downsides of those instruments.

Short Term: Leveraged ETFs are tailor made for short term traders. Many critics have faulted leveraged and inverse leveraged ETFs for their inability to track their underlying indexes over extended periods of time. This, however, is of almost zero concern to the short term trader operating in a 5-7 day time frame.

Those are the first two. But what is the third reason and what does it have to do with where ETFs like SKF, SSO and UYG are trading right now?

The third reason why more traders are turning to leveraged ETFs is that leveraged ETFs exhibit the same sort of mean reversion tendencies as their non-leveraged brethren. This means that traders who have come to understand how high probability, mean reversion strategies work in stocks and regular exchange-traded funds, will find it fairly easy to adapt to high probability leveraged ETF trading strategies.

Take a look at a few short term leveraged ETF trade setups based on the high probability strategies of the TradingMarkets Leveraged ETF Trading Course.

First, take a look at this chart of the ^TZA^ from late December. The ETF, which is leveraged 300% to the daily performance of the Russell 2000 Index, had become extremely oversold toward year’s end. These oversold conditions alerted high probability traders to this potential opportunity: a gain of well over 4% in four days.

Here’s another set-up using the example of the ^FAZ^ from earlier this month.

In this instance, FAZ had become extremely oversold within the first few trading days of the New Year. These oversold conditions were again a signal to high probability traders, who were able to take advantage of opportunities like the one above in FAZ for a gain of more than 5%.

These are the kind of high probability leveraged ETF trades that those who enroll in the TradingMarkets Leveraged ETF Trading Course will be able to make every day, whether the market is in a bull mode or bear mode. The first of its kind offered by TradingMarkets, the TradingMarkets Leveraged ETF Trading Course will provide advanced, aggressive traders with the education and training required to successfully build an ETF trading business in one of the fastest-growing sectors of the ETF market: the market for leveraged exchange-traded funds. Click here to reserve your space today!

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