Scale In Trade to Inverse Gold ETF Could Benefit From Potential Decline in Gold

SPDR Gold Shares (NYSE: GLD) has started the year with a gain of 3.16% and is approaching an overbought level. An inverse gold fund that gains when gold declines, PowerShares DB Gold Double Short ETN (NYSE: DZZ), has fallen to an oversold level with a PowerRatings of 8.


PowerRatings are based on the relative strength or weakness of particular stocks or ETFs. The higher the rating, the greater the one week historical gain has been for stocks and ETFs with that rating. For best results, enter trades on stocks with a PowerRatings of 8 or higher with a limit order 3-7% below the previous day’s closing price. Higher % limit entries have historically shown a greater percentage of winning trades but higher % limit orders also reduce the chance of trade execution.

In the past, buying stocks or ETFs with a rating of 8 on a 5% pullback the next day and selling five days later has been profitable 72% of the time. The average winner has gained 3.9%. Other entries and exits also show high winning percentages and large average gains.

There is no way to know when gold will become overbought and a potential strategy for markets like this is explained in the Connors Research Guidebook ETF Scale-In Strategy, If the price of DZZ goes up, the advantage of scale-in trading is that you have a profitable position. If prices go down, scale-in trading provides the opportunity to add to your position at even better prices and you can continue to buy as prices go lower until you get your full position.

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All data is as of the end of day on 1/16/2014.