In general I only trade FAS/FAZ when the S&P is not channel trending positive. Let's see if I can explain.
I don't short. I feel that's a greedy mans way to make money and by beating a man or stock or market while it's down is unworthy of who I am. Never hit a man while he's down kind of guy.
So how does a trader make money trading in a down market. FAZ, allows me to support a rising 3x ETF in a down market. In this I don't support hurting the market I make a living at. Or the economy of the country I live in. IMO only greedy people will support beating down their countries economy for profit.
Now that I've made myself look like a better person then I am, lets see why I choose to trade FAS/FAZ in down markets.
When the S&P is climbing or stalled channeling, there are plenty of stocks that one can trade and expect a profit, if they choose correctly. But the all boats thing will pull all stocks, good and bad down together, in a bad market. So finding good stocks doesn't matter. They are pulled down with market sentiment also. Can't find a winner then.
So I watch the S&P very close. And when I see a negative chart pattern in the S&P, I normally close out my portfolio and go to the sideline, till something happens. Either the market proves the chart pattern wrong and continues up or it follows the chart pattern and reverses to the negative charts target. That's when I start trading again. If it's up, I get back into my stocks I left. If it falls, I trade FAS?FAZ.
In a down market there are two things which happen. It can walk down in a channel. Or it can dive down, often seen in a market correction. Usually the walk down channel allows one to shift from FAS to FAZ and back again during it's progression. So a trader can swing in and out of FAS?FAZ, just like one swings in and out of various stocks in a good market. In a correction what happens is your first FAZ entry is never closed till bottom is hit and it bounces past First resistance, indicating a reversal to the upside is happening.
The only difference in my trading style is I only trade FAS?FAZ in down markets. But many stocks in an up market. So during down markets I lose the ability & safety to diversity. It screws up my years business plan. But I still can make a living. Just rebalance my portfolio and keep much more cash in reserve. I am a businessman. And most always trade on plans. Be them individual charts for individual stocks or monthly, quartly, or yearly business goals. There is always a plan used.
You can check the link in the sticky post area, at this board, to read much of what I teach. BOS put together a GREAT presentation for all.
So there it is. I go to the sidelines on S&P negative chart pattern. I ONLY trade FAS?FAZ in down markets. And if it's a correction down swing. That FAS?FAZ entry is buy and hold for the bottom turn. If it's a walk down market, because of a poor economic outlook. I swing in & out of FAS?FAZ till the market starts it's comeback. In up markets I swing trade TA & Charts from most all industries. But I hate emotion and rarely get involved in BIO's or pharma; Gold, or oil. These sectors often are either manipulated or have so much emotional you can't rely on charting or technical analysis. I am a Technical trader who trades chart patterns.
