Day Trade ETF's?

[zaiteku]

what do you guys think of Day Trading ETF's? Like the Ultras (QLD, DXD) etc? What are the Pros and Cons that you see to this?

 

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[NerdSmasher]

The only type of day trading I would even consider would be Options of high volume stocks, and ETFs, as the options are almost, if not just, as liquid as the stock; and you can get significantly higher returns. Though, that also goes with losses.

It's not too bad of an idea... but, personally, I'm not a big fan of day trading. I didn't get into investing to have another job:nonod:

 

[Edge]

Nothing wrong with daytrading them, liquidity is good on a lot of them.

If you find yourself swing trading them though, you'll find that you'd be better off buying the unleveraged ETF on margin. The reason is that they don't exactly simulate 2X, so you won't be affected by all the slippage.

If you are trading in an IRA, you don't have the option of buying on margin, so there isn't really another choice if you want to go 2X short.

I don't think the volume is there yet for the new 3X leverage funds. Should be interesting to see how they evolve.

 

[MJ DeMarco]

I day/swing trade the ETF's several times a month when I see a set-up ... in fact, today I closed out of one position (DBA) and had it just for 2 days. Made a nice $1,200. Normally I hold for a longer period and a bigger gain, but I had $1000 (10 hundred dollar bills in cash ) in front of me at the time which altered my trade exit.

When I physically can touch and see the money, versus just some digital mirage on a computer screen, selling the unrealized gains into realized, is not so hard.

As for your question, I think it is great time to be trading ETF's and I wish I had more time to do so. I seem to win 80% of my trades when I put the time into it. I've been watching the DXD for sometime but haven't started trading it yet ... I like to watch behavior first.

 

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[zaiteku]

Hi MJ,

thanks for the reply,

Ive been trying to develop a system right now, but its been slow going as I know little about them (ETF's) compared to stocks and options.

Ive been trying to find a correlation between the NDX and the QLD (for example) and then gauging market tone, then looking for setups on the intra-day charts. One problem I have noticed however, is that even the Ultra's dont tend to move very much on some days (like a dollar or 2). So the high R setups a sometimes few and far between (I use 15min bars). Hence I was looking into 3x ETF's, but a few things concern me about the 3x's:

1- it would appear that they would move less like their underlying, being that they are probably more influenced by what they are using to lever after a while, so I wonder if its hard to gauge tone by looking at their underlying?
2- They seem so volatile that entering and exiting at pre-defined levels would be tough even with hard stops in place.

do you think you could give me a short run down on your system for day/swing trading the ETF's? any info would be a great help!


Edge, good points on unlevered ETF's with margin, I really need to factor in margin into my position sizing and stops.