Leveraged ETFs and Risk

I thought today would be a good day to discuss some of the additional risks associated with leveraged ETFs.

As you know, the goal of my Daily Battle Plan is to identify high probability ETF set-ups and then scale-into those positions. As you have seen, this has happened 15 times this year and 14 of the 15 times have been successful in the Model Portfolio.

When you trade and see this type of performance, its easy to get into greed mode. This means it's been nice to make X% on the last few trades. But, if I traded the 2x ETFs I would have made double. Then after successfully trading it with the 2x ETFs for awhile (and even more gains have come in), it's easy to then say it's even better to do this with the 3x ETFs. And possibly at the same time allocate more capital to each 3x position.

I know this sounds great and for some people on the Daily Plan, it's worked well. But after being in this industry for 28 years, certain themes occur over and over. And one of those themes is the danger of taking on too much risk, especially after a strategy has had the type of success that the TPS Strategy has had since we introduced it last year.

This week was a good week for many of us. In some cases, Monday alone was a good month for some of you (and congratulations).

It’s now a good time with the money in the bank, to take a step back and just make sure you are not assuming too much risk in any of the trades. Leverage and position sizing is an art and a science and they work well for many traders, as long as they understand the risks involved in any position. Take the time to think through what is the proper position sizing for your ETF trades and whether the leveraged ETFs play a role for you. There will be plenty more TPS signals coming up in the future and you should be comfortably ahead now if you’re following the Daily Battle Plan. The key is to not let these profits slip away because of too much leverage in any trades you do in the future.

The goal is always to grow your money, while taking the least amount of risk as possible. Applying good risk management and proper position sizing along with using the proper trading strategies are all equally important and its what makes a succesful professional trader.

I hope this has been helpful.

Special Note: Yesterday I mentioned I’m conducting a presentation on our upcoming Swing Trading College which includes information on the TPS strategy mentioned above. The presentation is tomorrow (not today) at 4:30 pm ET. If you’d like to attend please register by calling 1-888-484-8220 ext 1. Outside the US call 213-955-5858 ext 1.