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When day trading, many people think of trading penny stocks or the high flyers of the day.
Well in this article I am going to discuss the ETFs which I constantly see on my scanner. In full
disclosure, I do not day trade these, because I prefer slow, boring, low volatility stocks at this
point in my trading career.
However, that does not mean they can't work for you and your trading style.
Table of Contents
The thought is you invest in ETFs as a hedge or as a mechanism for gaining exposure to a
particular broad market like the S&P. Well, let me give you the three Vs of why ETFs can work
for volatile traders.
Volume
The first reason ETFs are a great opportunity for volatile day traders is the level of volume.
These securities do not lack interest, let me tell you. So, getting in and out of positions and
doing so with tight spreads is not an issue. So, if you are scalping or making many trades per
day, you can do so even with a large position.
Volatility
This again speaks to why I do not trade the most popular ETFs for day traders, but if you are
looking for volatility, you will surely find it as the market now offers 2x and 3x leveraged ETFs.
This means you can get similar price movements of penny stocks while still trading a security
with a value north of $20 or even $30 bucks.
Variety
The ETF market has progressed so much in the last 5 years that you can essentially find an ETF
for anything you are trading. For example, you can not only buy ETFs that track a specific
market, but you can also invest in ETFs that are the inverse of a market.
Therefore, if you feel the market is tanking, you can purchase an ETF that increases in value as
the market is dropping. Essentially, investing in an ETF that gives you the same effect as
opening a short trade.
The BRZU provides exposure to mid and large-cap Brazilian stocks. Sounds pretty
straightforward?
Now, if you look at the performance of the fund over a longer time horizon, the numbers aren't
great.
For me the times I have traded the BRZU, I wasn't thinking about investing in the Brazilian
market, I was more focused on a clean breakout or pullback trade intraday that had real
potential.
Even though the BRZU is based on stocks from Brazil, it's price action will closely mirror that of
the S&P ETF.
BRZU versus SPY
Like BRZU, the Direxion Daily Gold Miners is full of high volume events. In addition, the ETF
trades at 3X the move in the gold market.
This means the price action will vary wildly and provide great swings for volatile day trades.
NUGT Price Swings
As you can see in the above chart, the price swings are vicious. You have to make sure you
know what you are doing before attempting to day trade NUGT. Most importantly, you are
going to want to honor your stops!
#3 - DRIP Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X
At this point, you are clear on 3X movement and ETFs from Direxion.
It may feel like I'm doing a promotion for them, but I am not affiliated in any way. These are just
the ETFs I see moving each day in the market.
DRIP Return
That's right - a whopping 256% return for the year. There is something about that large of a
return that is in direct conflict with an ETF. The DRIP is essentially a short of the oil market and
as you can see business is booming.
So far we have displayed some wild price moves in the other ETFs, but this is a 17% move in a
matter of hours.
Now, day trading does not have to be this volatile and you can easily day trade stocks like
Microsoft or IBM.
However, if you are looking for the most volatile opportunities within the ETF realm, these
three will give you a good head start.