As a relatively newer trader (started with basic investing a little over a year ago, only dove into trading and options a few months ago), Ive been trying various strategies, and would like some help better understanding the pros and cons of my current strategy, trading leveraged ETFs, as well as technical elements of them.
My focus, until I have a better understanding of technicals and ability to execute profitably consistently, is more swing trading than scalp or day trading. I figured swinging leveraged ETFs after dips was a good middle ground regarding risk/leverage, somewhere between shares and options, and doesn’t require the work that is required of looking through many individual stocks.
Ive had some success with buying each of the 3 dips this month (TQQQ) and holding for a couple/few days of recovery, somewhere in the ballpark of 10-15% each time.
This strategy was very quickly shot down in trading floor, and I’d like to know why there was such strong opinion against touching leveraged ETFs (I do understand that longer term holding will make you worse off due to the down swings - I’m strictly talking a day or a few days of holding, like one might hold a SPY call for leveraging when thinking SPY will climb).
It was also mentioned that another element of leveraged ETF risk is due to their daily rebalancing, which leads me to another couple, more technical questions:
- At what point in the day does this rebalancing occur?
- How, if at all, does daily rebalancing affect the risk of holding the fund’s shares overnight?
- How does extended hours trading occur on the leveraged ETF? Is it still moving according to the underlying ETF, is that price action due to trading of the leveraged ETF shares, or both?
Thanks in advance!