How to Trade ETFs: 3 Top 10 Short ETFs for Traders
I can’t remember the last time – if ever – that we had so many top-rated short ETFs in our Top 25 PowerRatings Roster. Fully 17 of the Top 25 are not only short ETFs – which track the inverse of their underlying index or benchmark – but also all 17 have Short Term PowerRatings of 9.
What’s even more amazing is that six of the Top 25 are top-rated, 10-rated short ETFs.
Our Short Term PowerRatings were built with short term stock trading in mind. However, we have seen how high Short Term PowerRatings ETFs tend to act in very similar ways to high Short Term PowerRatings stocks: bought on pullback, on intraday weakness or on a follow-through close to the downside, these high Short Term PowerRatings ETFs – just like their equity counterparts – also tend to outperform in the short term.
ProShares Short S&P 500 ETF
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PowerRating) Short Term PowerRating 10. RSI(2): 4.98
Those of you who have been following our PowerRatings and ETFs strategy columns over the past several weeks have no doubt already seen this in practice. What’s more, the reaction, the bounce higher, by oversold, high Short Term PowerRating ETFs has often been even more impressive and powerful than that of high Short Term PowerRatings stocks.
ProShares Short Russell 2000 ETF
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PowerRating) Short Term PowerRating 10. RSI(2): 5.85
In part, I suspect this is because it is harder for an ETF to reach an extremely high (or low) Short Term PowerRating. Thus when we see ETFs with Short Term PowerRatings of 9, to say nothing of 10, we know that we are looking at an extremely oversold, extremely compressed market. And our research tells us that when we find extremely oversold, extremely compressed markets trading above their 200-day moving averages, the opportunities to the upside are often not far behind.
ProShares UltraShort S&P MidCap 600 ETF
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PowerRating) Short Term PowerRating 10. RSI(2): 6.26
To be sure, this type of trading is not as psychologically easy as buying breakouts and running with the herd. But our research and experience as traders tells us that following the crowd is often not the best way to make money trading stocks and ETFs. Our high probability, mean reversion strategies take an opposite approach – a professional approach, to be honest about it – that consistently seeks to buy when traders are fearful and selling, and to sell when traders are overconfident, greedy and willing to pay any price for “inventory” that our research tells us is overvalued in the short term.
Does your stock trading need a tune-up? Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of nearly 17 to 1 after five days.
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Whether you have a trading strategy of your own that could use a boost or are looking for a way to tell the stocks that will move higher in the short term from the stocks that are more likely to disappoint, our Short Term PowerRatings are based on more than a decade of quantified, backtested simulated stock trades involving millions of stocks between 1995 and 2007. Click the link above or call us at 888-484-8220, extension 1, and start your free trial today.
David Penn is Editor in Chief at TradingMarkets.com.