All signs portray that we are entering into a bear market. How do you participate in down-moving markets without shorting stocks?
In particular, when you trade out of an IRA or Cash account, there is a solution for you.
Inverse ETFs are financial instruments designed to move in the opposite direction of their underlying assets or indexes. They offer traders the opportunity to profit from declining markets or sectors. Here’s why and how to trade them:
Why Trade Inverse ETFs?
Hedging: Inverse ETFs act as hedges against market downturns. Inverse ETFs can help offset losses during market declines when holding a portfolio of long positions.
Diversification: They provide an avenue for diversification by allowing you to profit from bearish movements in specific sectors or asset classes.
Shorting Simplified: Shorting individual stocks or assets can be complex and risky. Inverse ETFs offer an easier way to bet against a particular market without short-selling.
With 101 ETFs traded on the US markets, Inverse ETFs have total assets under management of about $17 billion. Inverse ETFs are offered in the following asset classes:
- Indexes
- Market Sectors
- Commodities
- Currencies
- Treasuries
We worked for you and analyzed the best tradable ones based on their daily volume, asset value, and price move potential (SPU). In the following table, we highlight our best choices in light blue.
NLT Selected Inverse ETFs
The second to last column, leverage, compares the average inverse ETF price movement to the base index. For example, when QQQ moves with a value change of 1.8% per day, the inverse ETF, SQQQ, moves 5% or 2.8 times leveraged to the base. The last column shows the additional leverage potential when you obtain portfolio margin. In the case of SDS, you would only get accounted for about 30 cents of every dollar invested.
How to Trade Inverse ETFs
First and foremost, ensure you have a sound reason for the trade. Again, we simplify the choice for you:
Let the chart tell when to buy or sell!
In the case of trading inverse ETFs, you can either look at the base index (QQQ, SPY) or the chart of the referring inverse ETF (SQQQ, SDS, e.g.). We picked an example of SPY and SDS for October 2023 to demonstrate this.
SDS, Daily NLT Chart
SPY, Daily NLT Chart
Between October 10 and 20, 2023, the charts show an inverse duplicity of the signals. All confirmed trades (checkmark) came to the system-defined target based on the NLT indicators.
The charts we share show the newest and most robust swing trading package, combining NLT Top-Line, NLT Price Mover, and the NLT Price Breakout Zone.
In the same period, the NASDAQ-100-oriented QQQ ETF showed the following signals that were accordingly tradable on SQQQ.
QQQ, NLT Daily Chart
The chart shares three confirmed directional signals that came to the system-set target.
Risk Management: Like any investment, set stop-loss orders to limit potential losses or use the NLT trade repair method. The value of inverse ETFs can erode over time due to compounding, so consider them short-term trading instruments.
Monitoring: Keep a close eye on your positions. Inverse ETFs need active management; by their leverage, their value can change rapidly.
Remember that inverse ETFs are not suitable for all traders and come with their own risks, before engaging with these financial instruments, a clear strategy, risk management plan, and a good understanding of your trading markets.
To share an overview of what is needed to successfully maneuver through the financial markets, we invite you to learn the “21 Skills That Will Pay Traders Forever.”
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Indeed, our systems work for all asset classes: stocks, options, futures, and FOREX. We offer you a personal consulting hour to find out how we can support your trading:
contact@NeverLossTrading.com Subj.: Demo.
We have over ten years in the trading education business and have helped many make fruitful financial decisions. We work one-on-one only. Our yearend special integrates multiple systems to help you act at crucial price turning points.
Our brand, NeverLossTrading, derives from the idea of Never Stop Loss Trading, and you will learn the details when we work together.
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Ongoing education and mentoring are crucial to longevity in this business. Veteran traders have been through more ups and downs than you can imagine. So, experienced pros have probably experienced whatever you’re going through.
If you are ready to make a difference in your trading:
We are happy to share our experiences and help you build your trading business. Trading is not a typical career, and you best learn from those who are long-term in this business to cope with the rollercoaster of the financial markets. We are here to help and provide feedback on what you might be doing right or wrong.
Strive for improved trading results, and we will determine which of our systems suits you best.
The markets changed, and if you do not change your trading strategies with them, it can be a very costly undertaking.
We are looking forward to hearing back from you,
Thomas Barmann (inventor and founder of NeverLossTrading)
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