Leveraged Index ETF s Only?

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1 Leveraged Index ETF s Only? The plans of the diligent leads to profit as surely as haste leads to poverty! ~~ Proverbs 21:5 DENNIS W. WILBORN, SR. DWW@ACTIVETRENDTRADING.COM

2 Clarify, Simplify & Multiply This has been the Motto of Active Trend Trading from the beginning! We continuously work to Clarify & Simplify through refinements to the system to make it objective and easy to both learn and use. The purpose of all presentations is to provide our fellow Active Trend Trader Members a jump start to accelerate progress up the Learning Curve. We welcome suggestions on how to improve the learning process! Trade Wisely & Profitably, Dennis W. Wilborn Founder & Lead Technical Analyst

3 Disclaimer U.S. GOVERNMENT REQUIRED DISCLAIMER COMMODITY FUTURES TRADING COMMISSION FUTURES AND OPTIONS TRADING HAS LARGE POTENTIAL REWARDS, BUT ALS O LARGE POTENTIAL RISK. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THE FUTURES AND OPTIONS MARKETS. DON T TRADE WITH MONEY YOU CAN T AFFORD TO LOSE. THIS IS NEITHER A SOLICITATION NOR AN OFFER TO BUY/SELL FUTURES OR OPTIONS. NO REPRESENTATION I S BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED IN THIS TRAINING. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. CFTC RULE 4.41 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS H AVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESU LTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN E XECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF AN Y, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PRO GRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. ALL MATERIALS PRESENTED ARE FOR TRAINING PURPOSES ONLY. TRADERS SHOULD PAPER TRADE ANY NEW METHOD PRIOR TO RISK OF PERSONAL CAPITAL.

4 Objectives- - Provide an overview of Leveraged Index ETFs - What to Expect Gain from their Strengths - What to Expect Protection from their weakness Tracking Indexes SPXU SPX SPY SPXL or UPRO SQQQ NDX QQQ TQQQ TZA RUT IWM TNA - Other Candidates Oil: SCO UCO Gold: DUST NUGT Financials: FAZ FAS BioTech: BIS BIB Less than 1M shares traded daily! The plans of the diligent leads to profit

5 Pros: - Highly Liquid - Seek 2x or 3x the daily move of the underlying Index - Trades like a stock - Don t have to be constantly searching for the next stock to trade - Seasonality - Compounding Pros Cons: - Compounding Cons - Lose Value over Long Periods due to derivatives traded to achieve 2x or 3x Leverage Especially with the Inverses - Does not follow underlying with precision Similar but not exact! (Trade off the underlying or the non-leveraged ETF) - Illiquid Options The plans of the diligent leads to profit

6 Strengths & Weakness For Leveraged Index ETFs their Strengths and Weakness partially one and same 1. Provide a DAILY Return that is a certain multiple of the daily Index Move This can amplify losses 2. Derivatives necessary to achieve the double and triple returns can lead to contango/backwardation. Call it leakage Occasionally requires backward splits on the Inverse Leveraged ETF 3. Designed for short term trades 90 days or less (especially Inverse ETFs)

7 Strengths & Weakness Daily Compounding Example To understand the math, consider a hypothetical index that rises 10% one day and falls 10% the next. If you earned exactly the index return in an unleveraged fund, a $100 investment would grow to $110 and then drop to $99, for a cumulative $1 loss. Now take a 2x leveraged fund: A 20% advance would bring you to $120; after a 20% drop, you would be left with $96. Over two days you have lost $4 instead of $1. Over months and years you can lose money in leveraged ETFs, even with a correct bet on the market's overall direction. So trade in short thrust

8 SPX SPY Charts Similar but Not Exact

9 SPX UPRO Charts Similar but Not Exact

Weekly Comparison Chart SPXL-SPX -17.52% Drop +105.

10 Weekly Comparison Chart SPXL-SPX % Drop % Gain Since Dec 31, % Gain Since Dec 31, % Drop

11 1-4 Split Weekly Comparison Chart SPXU-SPX +3.77% Gain Since Dec % Loss Since Dec

12 Summary 1. Directional Bias 2. Designed for short term holding periods 3. A heighten Reward-Risk Scenario 4. Technically similar to underlying but not precise

13 Financials - FAS 52%

14 Oil - UCO Seasonality 40% + Range

15 BIB 42% Range

16 154% 141% 48% 34% 334% Multiple Opportunities 35% 33% NUGT Good Patterns and Strong Moves

17 SPX UPRO

18 NDX - TQQQ

19 RUT - TNA

20 Leveraged Index ETF s Only? Part 2: Why s & How s The plans of the diligent leads to profit as surely as haste leads to poverty! ~~ Proverbs 21:5 DENNIS W. WILBORN, SR. DWW@ACTIVETRENDTRADING.COM

21 Part II : The Why s and How's

22 Summary 1. Directional Bias 2. Designed for short term holding periods 90 days or less! 3. A heighten Reward-Risk Scenario 4. Technically similar to underlying but not precise

23 Why s 1. Simplify research for working members 2. Good Technical Signals 3. No Earning Surprises 4. Trade like a Stock 5. Weekly Options on some provides alternative trading approaches 6. Big Move Potential

24 154% 141% 48% 34% 334% Multiple Opportunities 35% 33% NUGT Good Patterns and Strong Moves

25 How s 1. Patience, Diligence & Persistence 2. Apply ATTS Rules 3. Review Watch List Daily after the Market Closes 4. Use Weekly, Daily & Intraday Charts 5. Look and Wait for Indicator Extremes, plus divergences for best results 6. Identify which ETF is closest to a buy point 7. Define the triggers 8. Target Shooting OK with appropriate stops and Profit Targets

26 RUT TNA - Weekly

27 RUT TNA - Daily

28 RUT TNA 1-Hour Intraday

29 Summary 1. Directional Bias 2. Designed for short term holding periods 90 days or less! 3. Patience, Diligence & Persistence 4. Apply ATTS Rules 5. Review Watch List Daily after the Market Closes

With Leveraged ETFs. With Leveraged ETFs STOCKS? We Don t Need No Stinking Stocks! Observe things how they are; See things how they can be!

With Leveraged ETFs. With Leveraged ETFs STOCKS? We Don t Need No Stinking Stocks! Observe things how they are; See things how they can be! With Leveraged ETFs Active Trend Trading: Dennis W. Wilborn With Leveraged ETFs STOCKS? We Don t Need No Stinking Stocks! Observe things how they are; See things how they can be! Disclaimer U.S. Government