One of the great things about leveraged exchange-traded funds (ETFs) is that, thanks to their inverse versions, short term traders can take advantage of opportunities and major edges on both sides of the market.
And one of the best things about leveraged ETF PowerRatings is that those opportunities and edges are easier to spot than ever.
In other words, being able to go short the ^DIG^ as well as long the ^DUG^ (and vice versa, of course) is good. But having a quantified, backtested trading strategy that helps you know which do to when is even better.
Consider a recent example.
Late in March, the ^ERX^ earned out top leveraged ETF PowerRating of 10. In our testing, going back to inception, leveraged ETFs earning PowerRatings of 10 have made significant short term gains more than 75% of the time. This data is through December 31, 2009.
ERX didn’t just earn a top Leveraged ETF PowerRating on the 24th. The fund continued to move lower, earning additional top 10 ratings on the next two consecutive closes as well. Three days later, ERX had earned three 10s in a row.
This was a signal that the edges were mounting behind the fund. Look how the fund traded after three days of 10, 10, 10 …
Not every top rated leveraged ETF will perform as well as ERX – which essentially gave traders three separate “alerts” that it was trading at levels from which it has historically advanced AND produced exceptionally powerful advance when the inevitable buying began to pour in. A more recent opportunity in the inverse of the ERX, the ^ERY^, gave short term traders a quick gain of more than 2% before reversing lower (a reminder to be wary of overstaying a welcome).
But for short term traders who are looking to both take advantage of the most innovative financial products available to retail traders – leveraged ETFs – tools like leveraged ETF PowerRatings can provide just the kind of necessary short term guidance to help spot opportunities when the profit-taking and panic selling traders put markets on sale.
Isn’t it time you learned how to trade leveraged ETFs? Click here to learn more about the research behind our Leveraged ETF PowerRatings. Quantified. Backtested. And free for a week.
David Penn is Editor in Chief at TradingMarkets.com.