May 30th update and musings

Quick note on the daily charting for longer term trading of the ETFs.

The bull ETF moving averages seem to correspond reasonably well with the same period averages on the SPX chart. The ber funds, on the other hand, vary widely. It appears that the longer the period of the moving average the less correlation it has. This makes using them on the bear fund charts impossible to use. I realized some time ago that trading ETFs really should be based on the underlying index chart and not the ETF chart anyway but this is more important on the daily scale.

On the minute scale the averages are not bad and can be used, loosely, on any chart for comparison but the index should still be the main reference.

This brings me back to the trial trade in the last post. My stop of $56 on SDS was based on monthly pivot points calculated from that chart...I should have been using the index especially as, unlike day trading, a daily chart needs no instantaneous updates to determine trade management.

So, looking at the charts I see that I should have bee stopped out on SDS yesterday, even according to the SPY chart had I bee shorting I would have covered as my stop would have been based on the 200 DMA line and it was breached in both cases as the end of bay...and end of month rush, spiked SPY over a dollar, SDS dropped a bit more than that. That last push would have stopped me out, which would not have been in the plan.

So going back to the SPX chart it peaked at 920. Still short of the 200DMA at 928.60 and short of the recent high of 929.20.

Another consideration is that longer term trades really should be taken on non-leveraged funds as the leverage effect loses money over the long run as a price oscillates from day to day particularly in a sideways market move. Nice straight trending is fine but that is not always the case. In fact, a good long long term plan might be to short a bull fund and hold it as a hedge as, over time, it will continue to drop in peak value until it reaches the point where the fund manager decides to consolidate the units to bring the value back up to a workable level.

Anyone wanting to see this just run a chart with an index and the leveraged bull fund side by side or overlayed. Each successive peak of the fund is slightly lower than the peak of the index, relative to all previous peaks as the fund gets rebalanced each day whereas the index does not. I think that shorting a leveraged bear fund would result in the same effect but I haven't looked closely at it. Had I access to shorting ETFs (no shorting in my registered accounts) I might just short a handful of shares and hold them to see how effective this might be in reality.

I digress.

The point is that my SDS trade would likely be an SH (proshares S&P500 short...non-leveraged) at $66.92. Current closing price is $65.82.

That compares to $55.50 in SDS down from $57.71. Thanks to leverage.

So, we shall see where this goes. I will consider entering the next trade setup for longer term in my TFSA account. I probably will not trade in even lots so I cannot use a true stop loss, but that hardly matters as I intend to be day trading so I can easily monitor the position and close the trade at any time during the day...which also lets me aim for better prices than just the previous day's close. Perhaps even try out a VTSO to enter the trade...I wonder if that will work...