Clicky

Frequently Asked Questions

select FAQ category below or view all

The 3-week free trial period provides Gold level access. If you decide to join RSOTC once your trial period has expired, you will have the option to choose either a Silver or Gold level membership along with the term (monthly, quarterly, semi-annual or yearly). After your trial period has expired, you will be automatically redirected to the membership options page upon logging on to the site using the same login credentials as you did during your trial period.

The next scheduled renewal date for your membership can be found on the right side of the Login Welcome page, which can be accessed by clicking here.

That was a question posted by a member of the site on Oct 17, 2016 and this was my reply:

That’s a great question Bibiano. In fact, I’m going to add it to the FAQ page. Technically, yes, I do monitor oil, gold, nat gas, biotechs & just about every other key index, sector & commodity on a consistent basis however, I don’t always post updates on each of those on a regular basis.

The financial markets are a compilation of US & global stocks, commodities, currencies, precious metals, etc.., all of which are inter-related to varying degrees with one particular asset class often affected by what’s occurring in another asset class (e.g- the correlation between oil or gold & the US dollar or other key currencies). While I spend the bulk of my day reviewing the charts & price action of most major stock indices, currencies, various type of bonds, commodities, etc…, I don’t always post consistent updates on all of them.

First & foremost, there just isn’t enough time in the day to do so but more importantly, I strive to keep the analysis & trade ideas on RSOTC as streamlined and as timely as possible. If I were post regular updates on, gold, for example, there’s a good chance that my analysis on gold would become somewhat diluted. For example, the less-active swing traders & investors that might just scan the headlines of my front page posts might miss the posts where I start to highlight some key developments in the precious metals.

As such, I might suddenly increase my analysis & posting of trade ideas on gold, silver & the miners when it appears that the sector may be about to present some lucrative trading opportunities. Likewise, once the bulk of the move that I was expecting has played out & the R/R is no longer very compelling, such as I recently posted a couple of weeks ago when I closed out the short trades on the gold & silver mining stocks (which have since grinded around in a sideways, nearly impossible to trade range, going nowhere since then), I will share my thoughts as to the fact that I either don’t have a good read on the next direction of the sector or simply don’t think the R/R is attractive to remain long or short and simply move on to the next trading opportunity that looks compelling.

EVERY asset class, be it a stock index, sector, commodity, currency, etc… goes through periods that are very conducive to swing or trend trading as well as periods where the current or next direction is simply very unclear. including impossible to trade consolidation periods that can last for months or sometimes years. I will watch a particular sector or stock for weeks, months & even years, waiting patiently for the charts to clearly start setting up for a likely bullish or bearish trend/trading opportunity. It is not uncommon for me to post very frequent updates on a particular sector for days, weeks or months on end then relatively abruptly, after closing out all my positions once the R/R for trading that sector no longer looks compelling, I might stop posting updates until the next trading opp in that sector begins to materialize.

With that being said, one of the benefits offered to Gold members of the site is they can request my opinion on a stock, sector, commodity, international stock index, etc… whenever they like. I’ll typically reply with my thoughts, as well as the conviction (or lack thereof) of my opinion, along with a chart(s) supporting my analysis. Such requests can be made publicly via the trading room (the preferred option as others might benefit from the discussion) or via the private messaging feature. Hope this helps & as always, I welcome feedback & suggestions to the site & will do my best to accommodate the requests from members.

0

After your 3-week free trial period has ended, should you decide to become a Silver or Gold member in order to access premium content such as the trade ideas or access to the trading room, the process is as follows:

Upon logging in for the first time following the expiration of your free trial period, you will be re-directed to the membership renewal page. From there, you will be able to select your membership level (Silver or Gold) along with your choice of a monthly, quarterly or semi-annual term, with discounts applied to the longer terms.

Upon purchasing a premium membership following your free trial period, your username, password, account notification settings, etc.. will remain the same. All memberships terms will automatically renew for the same time period (monthly, quarterly or semi-annually) with automatically billing and can be cancelled anytime (see additional Membership FAQ's for details).

If you wish to change the credit card associated with your membership subscription or to update your credit card expiration date, please click here to visit our Billing Update page.

Right Side Of The Chart provides you with the ability to cancel any future renewals of your membership at anytime. Upon cancellation, you will continue to have full access to the site for the remainder of your current membership term. Full or pro-rated refunds are NOT provided upon the cancellation of your recurring billing period.

To cancel your membership, please make sure that you are logged in and then click here to go to our billing cancellation page.

Should you have any questions or issues with the cancellation process, click here to contact us.

Nearly all credit & debit cards, including Visa, MasterCard, American Express, JCB, Discover, and Diners Club from anywhere in the world are accepted. Gift & pre-paid cards from these types of cards are also accepted as well.

If you would prefer to pay by check, please contact us & we will provide mailing & payment instructions. Other payment options such as PayPal, Bitcoin, Apple Pay, Android Pay, and China’s Alipay are not currently offered but will be considered if the demand is there. Please let us know if you have a strong preference to any one of these or any other payment options.

The free 3-week trial does not require a credit card, nor any personal information other than an email address. The only requirements for the free trial period are a username of your choosing and an email address, which is used to send the registration verification link (to prevent spam-bots from registering on the site) as well as a link to select your password.

Your email address will not be sold, shared or disclosed to any third party sources. Our Privacy Policy can be viewed by clicking here.

No. Right Side Of The Chart offer both free & premium content. The free content is available to all and does not require registration with RSOTC. Details on the free vs. premium content can be viewed by clicking this link.

Many of the trade ideas on RSOTC list multiple price targets to accommodate various trading styles. For example, a very active trader might only target T1 (the first profit target) looking to book a quick, relatively modest 5% on a trade that is expected to last anywhere from a couple of days to less than two weeks while a typical swing trader who is bullish on both the specific stock as well as the broad market in the short & intermediate-term might prefer to hold out for T3 for double-digit gains and an expected holding period of a few weeks to a couple of months, possibly booking partial profits or even reversing the trade (short to long for a quick bounce) at T2.

Preferred Price Target ExampleAlthough all profit targets posted on the trade ideas have a good chance of being hit based on my analysis of the chart, I view targets this way: Logically, the lower the target (numerically, e.g.- T1, T2, etc…) the better chance it has of being hit, as that level is closest to the current price. However, the final target, although having a lower probability of being hit, still has a relative good chance based on my interpretation of the technicals along with other factors such as the outlook for the broad market, current sentiment & short-interest measures, etc…

Typically, the final target is set at a level in which the R/R is no longer clearly favorable to remain in the trade and therefore I will usually book profits on any and all shares that I might still own. A preferred target, which is often mentioned on a trade, is the level where the current “sweet spot” on the R/R curve is at the time, as illustrated in this example (chart).

Multiple price targets are often used for the trade ideas to accommodate various trading styles. For example, very active traders who prefer to book relatively shallow, quick profits & move on to the next trade my decide to book full profits at the first target while typical swing traders with holding periods measured in weeks or months may target one or more of the higher targets, possibly booking partial profits along the way as the early targets are hit.

Some traders might opt to book partial profits as certain targets are hit while very active traders might even micro-manage their trades around these levels (e.g.- reversing a trade from long to short at a target where a reaction is highly likely, then recycling back into the original direction of the trade either on the pullback or once that target level is cleared.)

Whatever your individual trading style is, the important thing is to have a trading plan in place for each trade which includes: How much capital you want to commit to the position; Whether you plan to scale into the position (average in) or take a full position upon your entry trigger; What your entry trigger will be; Your profit target(s) if the trade is successful as well as your stop level(s), if the trade does not pan out.

also see: How Are Price Targets Determined?

Many swing traders will close a position before the stock’s quarterly earnings release in order to avoid getting caught on the wrong side of a gap. My personal preference is to hold a position into earnings as more often than not, whatever “surprises” are built into the earnings release and forward guidance are already reflected in the charts. Of course more often than not is far from always so my preference to hold a position might not (and should not) be the preference for a more risk-adverse trader.

Also keep in mind that at times I do close positions ahead of a scheduled earnings release. For example, let’s say I’ve been in a trade for a couple of months with the trade close to approaching my final or preferred target. I might decide to book profits before earnings as the R/R (risk-to-reward ratio) is no longer favorable for holding out for a few more percentage points in profits while risking giving back much more, should the stock be negatively impacted by the earnings announcement or forward guidance.

Again, each trader must decide whether or not to hold into earnings. It is important to be aware that stop-loss orders DO NOT limit one’s downside risk to the amount of the stop-loss order with the big risk being large opening gaps that bypass the order. Stop-loss orders are essentially converted to markets orders once the stop-price has been hit OR exceeded. The potential exists for a large number of stop-loss orders to get filled at the open when a stock experiences a large gap. This ‘surge’ of orders further exacerbates the order imbalances (buyers vs. sellers) already caused by the news or earnings induced gap, hence the reason that many stocks peak out in the first 30 minutes (if not a few minutes after the open) on large gap days.

An alternative for longer-term swing or trend traders or those who decide to hold a position into earnings would be to purchase an OTM (out-of-the-money) put option on a long trade (or a call option a short trade) in lieu of a stop-loss order. For example, say that you were long 100 shares of XYZ trading at $50 per share and they were scheduled to report earnings tomorrow. You could buy 1 near-month put contract with a strike price of $47, thereby effectively limiting your downside risk to 6%, less the premium on the option and commission to purchase the put. Of course if your trade gaps higher and goes on to hit your target, your put will expire worthless (or you sell it for a loss after the earnings release).

Another benefit of protecting your downside on a trade with options vs. stop-loss order would be the rare but dreaded risk of getting caught in a flash-crash (they occasionally happen on individual stocks, not just the broad market). Again, a very rare occurrence but one in which your stop-loss order is likely to get filled at or even well below the stop price, only to see the stock rebound very sharply after the flash-crash and potentially leaving you with a much larger than expected loss. With a put (or call option for a short trade) in place, you’d not only be protected dollar for dollar on the downside (past your strike price) but you could benefit from a big surge in the volatility premium during a flash-crash.

Although I personally trade many of the trade ideas posted on Right Side of the Chart, I do not take every trade for numerous reasons. For example, at times, I might already be fully invested or at my ideal market exposure level when I come across some new trade ideas which are posted on the site. I may already have my maximum long or short exposure or target exposure to a specific sector at the time a new trade idea is posted, in which I'll pass on as to avoid over-exposure to that sector or industry. I also strive to provide the most attractive trade setups, long and short, regardless of my current market bias (which I always do my best to make clear). Therefore, while I might be bullish at the time & shying away from short exposure, someone who is bearish just might profit on a short trade that I posted as a trade idea but chose not to personally take the trade.

Another instance where I'll pass on a trade idea that triggers an entry would be if I plan to be away from my desk in the near future, such as just before a vacation. Additionally, many sector and broad market ETF trade ideas are posted on RSOTC. As an experienced trader, I will often chose to trade the most bullish or bearish stocks within a particular sector that stands out at the time, preferring to trade long (short) the most bullish (bearish) stocks within a particular sector or industry in lieu of trading the associated ETF. However, as many traders prefer the diversity and convenience of trading ETFs over individual stocks, ETFs are often posted as trade ideas.

Therefore, I may or may not have a position in any of the trade ideas posted on the site although I would never post a setup that I don't believe has a good chance of being successful. I strive to identify and share the most promising trade setups with clearly defined chart patterns and above average risk/reward profiles, both long and short, regardless of the current trend or my own personal market bias. With that being said, it is normal to expect more long trade setups when the near-term & intermediate-term trend or outlook for the market is bullish and vice versa with more short trade ideas during a downtrend or at times when it appears that a correction is likely.

The amount of capital one needs to begin trading or investing varies widely depending on numerous factors; Are you just interested in learning the basics or enhancing your trading & investing skills or do you plan to trade full time as your primary source of income? If so, how much do you need to withdrawal from your trading account for living expenses? What are your expected annual returns and how consistent to you expect those returns to be? Are you looking to trade to supplement another source of income, such as a pension or social security or are you still early in your working career?

The decision to embark on a career of trading full-time for a living should be carefully thought out and at that, only when one has a high-degree of confidence in their abilities to consistently generate more than enough income needed in all market conditions such as bull markets, bear markets and deer (sideways) markets. Typically, achieving such a level of trading proficiency takes years and is certainly not something that can be learned by attending a few seminars or subscribing to a newsletter or any other paid service, including this one. Unfortunately, the answer to the question about how much trading capital one needs to embark on a full-time trading career can not be answered here nor can Right Side of the Chart offer any type of trading, investing or career advice. The answer to that question can only be answered by the person asking it and only then, after they have enough experience in order to ask themselves all of the pertinent questions associated with their own unique circumstances.

For those new to trading or investing, one viable option to avoid the common pitfall of losing most or all of your trading/investing capital during the early stages of the never-ending learning curve would be to start out paper trading. Most brokerage firms offer paper trading whereby you are able to trade securities (stocks, ETFs, options, & futures) without using real money. One potential benefit to doing so would be to allow someone new to trading or investing to hone & refine their own unique trading style (e.g.-day trader, swing trader, trend trader, investor, etc..) without risking any real money. Inquire with your brokerage firm about paper trading and consider consulting with a licensed stock broker or Registered Investment Advisor before making any investment decisions that exceed your experience and/or comfort level. Please make sure to read our disclaimer.

Various criteria go into determining the price target levels such as the projected measured move of the technical pattern, support & resistance levels, Fibonacci retracements, volume-at-price clusters, etc… Profits targets are also largely determined based on my experience with such factors as the past trading history of a stock or sector as well as taking current market conditions into consideration (e.g.- Is market volatility high or low at the time? Is the trade aligned with the current trend or only a quick, counter-trend trade?)

Price targets are typically set just below the level where a reaction (i.e.- a pullback and/or brief consolidation period) is likely upon the initial tag of that level. Price targets (T1, T2, etc…) are set slightly below the actual resistance level for longs (slightly above for shorts) to help minimize the chances of missing a fill, should the position reverse just shy of support/resistance. For example, if the charts indicate that a long trade idea is likely to hit the $50.00 resistance level before reversing, my price target (and sell limit order) might be placed at 49.96. Also taken into consideration is the fact that when you sell a stock, your order is usually filled at the bid price, which is below the ask price (at which buy orders are filled). As such, if the HOD for the stock in the example above was exactly 50.00, that would most likely indicate that the only orders filled at that price were buyers, with sellers of the stock being filled at 49.99 or below as even the most liquid stocks will typically have at least a 1 cent spread (i.e.- the difference between the bid & ask price).

also see: Why Do Some Trades List Multiple Price Targets?

Although there are no guarantees in trading/investing, Right Side Of The Chart (RSOTC) makes every effort to explain the reasoning behind each trade idea, often providing additional information and considerations such as reducing position sizing on more volatile, higher risk trades; proper diversification among various sectors; helping to identify times when it might be beneficial to keep trading light, such as during periods where the market is likely to consolidate (i.e.- chop around without a clear direction); etc...

Many of the concepts and analysis published on Trade ideas on RSTOC may be useful to both short-term, active traders as well as longer-term investors utilizing a more hands-off, part-time approach to managing their trades or investments. Although the majority of the trade ideas shared on the site are intended as swing trades with typical holding periods ranging from several days to several months, RSOTC also offers a separate category of Long-Term Trade Ideas geared towards longer-term swing traders, trend traders & investors. Long-term Trades are trade or investment ideas that have the potential for significant returns over a longer-term period, typically several months or more. This category of trade ideas might be useful for the longer-term swing trader or investor looking for investment ideas to supplement their existing portfolio and prefers a less active, more hands-off approach to investing.

Please be aware that all content on this site is provided for informational and educational purposes. Furthermore, information contained herein reflects the opinions of its author and is provided for discussion purposes only. Under no circumstances does this information represent a recommendation to buy or sell securities, nor should it be construed as investment advice. Right Side of the Chart, LLC and Randy Phinney are NOT Registered Investments Advisors nor licensed or registered with any federal or state securities regulatory agency. Click here to view the full disclaimer.

Some of the more popular, actively traded ETFs such as the SPY or QQQ have a tremendous amount of liquidity, meaning that many shares are continually changing hands during the regular trading session (and often in pre-market & after-hours trading as well). As such, the spreads on actively traded ETFs are very tight, typically just a one cent difference between the bid (selling) and ask (buying) price. However, many ETFs & ETNs are thinly traded and as such, may experience considerable spreads at times, thereby offering less than favorable entry and exit prices, especially when using market orders.

When at all possible, it is preferable to use the most liquid (actively traded) ETF for the specific index, sector, commodity, etc.. that you wish to trade. However, when a thinly traded ETF is the only option available, the use of limit orders may be a better option than market orders although there are pros and cons to each. For example, if a thinly traded ETF that you were looking to buy currently had a bid price of 10.40 and an asking price of 10.50, a market order to buy would most likely fill at or near the 10.50 price, possibly higher, depending on the number of shares you are purchasing. Let's say you placed an order to buy 500 shares but there were only 200 shares being offered at the 10.50 ask price, then your first 200 shares should fill at 10.50 while the remaining 300 shares could fill at an even higher price due to slippage on the trade. With a spread of 10 cents, even if all of your shares filled at 10.50, you have immediately "lost" (on paper) about 1% on the trade just due to spreads alone as you would only get 10.40, possibly less, if you immediately sold those shares.

Therefore, the use of a limit order may be beneficial over a market order in this case. For example, one could place a limit order to buy the 500 shares at a price of 10.45, splitting the different between the bid & the ask price. The benefit to doing so would be that your order would only be filled at a price of 10.45 or better. However, there are two potential disadvantages to using a limit order in such a scenario: First, your order may or may not be filled. If you felt strong about entering this position, you risk that the price continues to move higher without your order filling and you must either decide to be comfortable not owning the position if it continues to move higher or to pull your limit order and "chase" the stock higher via another limit order or a market order.

The other potential pitfall of a limit order on a thinly traded stock or ETF would be a partial fill. In the example above, maybe your order to buy 500 shares at 10.45 is filled but only for 100 shares or less. If the order was a day order (good until the close of that trading session) and the remaining shares are not filled, then you will end up with a much smaller position that you originally wanted. Yes, a GTC order might fill the remaining shares in the coming days or weeks but with separate commission costs as most brokers will only aggregate fills, in calculating the total commission, on separate lots for a limit order if the fills on all lots occurred during the same trading session.

One final consideration regarding the liquidity of ETFs is that at times, ETFs that normally have large spreads due to low trading volumes can experience very tight spreads during periods of high trading volumes, such as a breakout in a sector or some news driven event that suddenly draws a lot of traders in. You may purchase that ETF with a market order noticing that the spreads are tight, only to find it hard to exit the position at a favorable price only a few days or weeks later after the volume surge has dried up. Therefore, it is best to know the history and average trading volume of the ETFs/ETNs that you plan to trade and account for any slippage or other liquidity issues that you might run into when formulating your trading plan.

A K-1 is a tax document used to report share of profits and losses from interests in limited partnerships. Due to their legal structuring, many ETPs (exchange traded products) issue K-1's instead of the more common 1099 tax form. Additional information on K-1's, along with a list of ETPs which issue K-1's, can be found in this brief article from Yahoo Finance:

ETF Tax Tutorial: Complete List Of ETFs That Issue A K-1

Definitions of  'Exchange Traded Products' (ETP) & 'Exchange-Traded Fund' (ETF), as per Investopedia:

An Exchange Traded Product, or ETF, is a type of security that is derivatively-priced and which trades intra-day on a national securities exchange. Exchange Traded Products are derivatively-priced, where the value is derived from another investment instruments such as a commodity, currency, share price or interest rate. Generally, exchange traded products are benchmarked to stocks, commodities, indices or they can be actively managed funds. Exchange traded products include exchange traded funds (ETFs), exchange traded vehicles (ETVs), exchange traded notes (ETNs) and certificates.

The most popular exchange traded product is the exchange traded fund (ETF). These are securities that track an index, commodity or basket of assets. Exchange traded notes, on the other hand, are a type of unsecured, unsubordinated debt security. The value of an ETN can be affected by the credit rating of the issuer and not just changes in the underlying index. Exchange traded products have experienced huge growth since they were introduced. Different tax treatment applies to the various types of exchange traded products.

Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does. By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order. One of the most widely known ETFs is called the Spider (SPDR), which tracks the S&P 500 index and trades under the symbol SPY.

No, the trade ideas on RSOTC are NOT investment or trading recommendations. Right Side Of The Chart LLC (RSOTC) is neither a Broker Dealer nor an investment advisor. The information provided from RSOTC, including market analysis, trading & investing ideas neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any investment decisions you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. All trading and investment ideas on RSOTC are for educational or illustrative purposes only.

When developing this site, accountability and the ability to view the past results of both market analysis as well as the performance of all trade ideas posted on RSTOC was a priority. One of the driving forces that prompted me to start RSOTC was the fact that in all my years of trading, I have yet to come across a single trading or investing service that provides a means to clearly & accurately view all former market commentary and trade ideas. Unfortunately, deceptive and outright false claims of stellar performance abound in the investment & trading world, especially in the less-regulated cyber-sphere.

Since the inception of Right Side of the Chart, every single post that has been published, e.g.- every market commentary, including all charts as well as all trade setups & the follow-up charts and commentary associated with each trade, are archived indefinitely and are easily accessible to both subscribers as well as the general public.

All trades, winners and losers, as well as all market commentary, charts or any post made since RSOTC was officially launched on January 1, 2012 is available in its original, *unedited form. (*published posts are occasionally edited after the original publication only for grammatical errors and typos or related errors such as mistakenly attaching the wrong chart, as these types of errors are somewhat common as due to the time-sensitive nature of many trade ideas & market updates, commentary & charts are often composed & published asap, then proofread for typos after-the-fact with typographical errors often pointed out by followers of the site...thank you!).

There are several ways to review the performance of trade ideas and market analysis on RSOTC:

  • The Completed Trades Archives.  On the menu bar near the top of the site, hover over the Trading & Investing Ideas category. From the sub-menu that pops up below, select Ccompleted Trades in order to view all completed trades, both long & short as well as the typical swing trade ideas along with the Long-term Trade (investments) ideas. From there, all trades can be viewed in reverse chronological order (most recent first) and you can even select to view trades by calendar year. Another option is to click on any of the ticker symbols in the "symbol cloud" at the top of the page. It is highly recommended to watch the Site Navigation and Tips video in order to take full advantage of the features available on RSTOC and most efficiently access the archived trade ideas and commentary.
  • Ticker Symbol Tags. Every post that discusses a particular stock, ETF, index or other financial instrument is assigned one or more Tags, which allow that post to be easily referenced in the future. Symbol tags can be referenced at the top of each Trade Category page (e.g.- Long Trade Setups, Active Short Trades, Growth & Income Trades, etc..). The tag or tags assigned to each post can also be found at the lower right-hand corner of that post. Finally, the "Select Ticker" dropdown box in the right-hand sidebar of the main page of the site can be used to quickly reference any symbol tag. All tags are hyperlinks which, when clicked, will bring up all previous posts associated with that symbol or "tag".  Note: When clicking on a tag within the tag cloud of a specific trade category, such as the Active Trades, only the posts on that ticker symbol associated with the current trade will be shown. This is covered in the Site Navigation & Tips video.
  • Using Categories. Let's say that your main interest lies in trading the ES mini futures or some other broad market derivatives or maybe you prefer to trade gold, silver, or various commodities. In addition to the symbol tagging system, each post is assigned one or more categories. Categories work in a similar fashion to the symbol tags where each post is assigned to one or more categories with the category(ies) appearing just below the title of each post (to the right of the date box). As with tags, you can simply click on the category that you are interested in viewing as these are also hyperlinks. The various categories can also be easily references from the main menu at the top of each page. Selecting the Gold & Commodities category will bring up all posts related to gold & commodities including gold & silver mining stocks.

(originally posted on January 6, 2015)

Tonight I received the following inquiry on the UCO short-term trade idea posted earlier today:

Q: I understand the price deterioration on a leverage ETF....does same apply for Non-leveraged ones? I think USO would be an example of this?

My reply below speaks generically to the use of leveraged vs. non-leverage ETPs in general. USO and other ETPs (Exchange Traded Products such as ETFs, ETNs.... click here to learn more about ETPs) that track a single commodity or basket of commodities typically do so via futures contracts, which have their own unique issues that can lead to variations in the return of the underlying commodity (spot price) and the actual performance of the tracking ETP. Those issues are an entirely different & complex conversation by themselves and not discussed below.

A: Not really. The price decay on leveraged ETFs is due to simple math and for the most part, does not affect the non-leveraged ETFs. Most non-leveraged tracking ETFs are pretty much efficient, less the small operating costs that they all must occur. You could Google some articles that explain why the leveraged ETFs decay but essentially, it’s something like this:

If XYZ is a 2x ETF that tracks the ABC index and the index goes up 3% today, then XYZ goes up 6%. $100k in ABC is now worth $103k & XYZ is worth $106k. Tomorrow the index drops by 3%. ABC is now worth $99.91 (103 x 97%) while XYZ is worth $99.64 (106 x 94%). Essentially, the longer a leveraged ETF is held, the larger the decay, or under-performance of the actual underlying index or sector that the leveraged ETF is tracking as the math works against it. Obviously, the more leverage employed (e.g. 3x vs. 2x), the more pronounced and rapid is the decay. This phenomenon holds true equally for both long (bullish) and short (bearish) leveraged ETFs.

One important factor to be aware of is that the more volatile the underlying (index, commodity or sector), the more pronounced and accelerated the decay will be. For example, in a perfect world, if the underlying were to go straight up every day without any down days, the leverage ETF would actually perform BETTER than expected. For example, if you put $100 in a 3x leverage long ETF and the underlying index went up 3% every day for 5 days straight, you would have nearly $116, not just $115. ($100 X 1.03 x 1.03 x 1.03 x 1.03 x 1.03 = $115.93). Of course, the markets aren’t perfect (even when lifted by the heavy hand of the Fed) so even in an decent uptrend, there are plenty of down days. Essentially, the more down days (or UP days when using leveraged short/bearish ETFs) and the larger the magnitude of these "down" days, the worse the decay will be over time.

When you trade a very volatile index, such as the gold miners or shipping stocks, the day to day percentage swings are often quite large and at times, extremely large. Therefore, NUGT (3x long gold mining ETF) will experience extensive decay or tracking error (when compared to GDX, the 1x or non-leveraged gold miners ETF). On the flip-side, an investment in a 2x leverage ETF for a relatively low volatility index during a fairly stable trend will still have some decay but quite minimal, at least over a relatively short period of time (weeks or even a few months).

Bottom line is that the leveraged ETFs, especially the 3x long & short and especially those tracking a commodity, sector or index experiencing high volatility such as crude oil as well as gold & silver mining stocks have been lately, are prone to the highest degree of price decay due to the combination of the leverage employed and the large back & forth price swings. As such, the leveraged ETFs are best used for intraday (in & out before the close) trades.

If one were bullish on, say, small cap stocks and wanted to take a large position with an expected holding period of 3-6+ months, they would most likely be better off buying $30k of IWM (1x Russell 2000) versus $15k of UWM (2x Russell 2000) or $10k of TNA (3x Russell 2000), particularly if the Russell 2000 Index traded sideways to lower over those 3-6+ months. Should the $RUT trade sideways in a choppy trading range for 6 months & end up exactly where it began, for the most part (plus dividends & minus operating expenses) the IWM trade would be flat while the UWM & TNA trades would almost certainly be at a loss.

originally posted February 17, 2012:

Beta-Adjusted Position Sizing is a term that I use for to process of determining how much trading capital to deploy to each of my trades.  Beta is the term used in the financial markets to compare the price fluctuations of a security (stock, ETF, mutual fund, etc..) against it's benchmark.  The most common benchmark used is the S&P500 although a stock's beta can be measured against any specific index or benchmark (e.g. comparing SPG (Simon Property Group, a large REIT, to the DJ REIT sector).  However, for the purpose of determining my position size, I typically use the broad market (S&P 500 Index).

GDX daily volatilityTake GDX for example.  Yesterday I had mentioned that fact that I completely disregard the big bullish engulfing candlestick put in on the daily chart since engulfing candlesticks are very common with the big price swings in GDX.  If you click to expand this chart, you will notice that the day to day swings are much larger than the daily moves in the SPX.  This gives GDX (forget about any correlations or lack thereof to the SPX for this purpose) a very high beta.

Another tool to use is the Average True Range (ATR) indicator on your charts but honestly, you should just be able to eyeball a chart and see how volatile any stock or ETF has traded in the past.  Most importantly, if you are looking at a stock in a pattern like a bullish falling wedge, you must realize that prices continue to be compressed as the wedge forms so don't assume that lower volatility will continue going forward. On the contrary, falling wedge patterns are like coiled springs and once they trigger (break-out) then volatility often increases very sharply, very fast.

I don't use any hard formula when determining my position size, maybe because I've been trading and investing for so many years that it becomes an automatic, especially as I often trade many of the same stocks repeatedly over time.  However, as a rookie trader or investor, I believe that it is critical to your success that you adjust your position size according to both the potential risk AND return (which ALWAYS go hand in hand).

For example, one of my recent trades was the CVM long set-up that was posted on Jan 12th (2012) while just breaking out of a nice falling channel.  CVM was a .34c stock back then which rule #1, DON'T USE FULL POSITION SIZES FOR PENNY STOCKS (sorry to yell, just wanted to make that clear).  The top of my final target zone was at .48c, or about 41% higher.  This trade hit that level just 3 days later (it actually stopped and reversed at .49c).  However, if that trade didn't work out and the breakout failed, I would not have been surprised to see it drop 10%+ in no time flat.  Therefore, on a trade like that, being a low-priced stock with a volatile trading history, if you would normally put, say $10k into a SPY or GE trade, then you might only want to put $2500-$3k (maybe even less) into CVM.  Think of it this way, if you are looking at a potential gain of 40% on the trade, then $3k x 40% = $1,200 profit.  That is equivalent to a 12% gain on your $10k SPY trade (and when was the last time the SPY when up 12% in 3 days?)

Also make sure to beta-adjust your ETF trades, accounting not only for any leverage (2x or 3x long or short ETF's) but also the sector.  That NUGT short that I have on right now is not only leveraged 3x against the gold miner sector but that sector itself is one of the most volatile sectors out there to boot.  Therefore, I not only lower the position size that I take on the trade but I also widen my stops considerably to account for both the leverage as well as the inherent volatility in the sector.  On a final note, it works the other way too.  For example, if I were to trade the TLT (long-term US gov't bond ETF), then I might use about 1 1/2 times my usually position size in order to account for the lower than usual expected gains and volatility.

Right Side of the Chart (RSOTC) provides analysis & commentary on US and global financial markets including stocks, bonds, commodities, precious metals & currencies as well as trading & investment ideas using an educational approach.  The site offers free content as well as premium services for a modest subscription fee (coming soon).

The trade ideas on RSOTC generally falling into one of two categories:  Swing Trades, which are trades with typical holding periods ranging from a couple of weeks to several months and Long-term Trades with expected holding periods typically 6-12 months or longer in some cases.  The Long-term Trades trades are often referred to as investments or trend trades, as the aim is to capture the bulk of the current primary bull or bear trend of the stock.

While technical analysis (charting) is primarily used for shorter-term trades, a combination of both technicals as well as fundamental analysis is used to identify the most promising Long-term Trade ideas. RSOTC includes an extensive video library in addition to regular postings of the latest market commentary, new trade setups as well as updates to existing trade ideas.

Although some of the shorter-term swing trade ideas occasionally reach a profit target the same day that an entry was triggered in the trade, due to the explosive nature of breakouts from certain technical patterns which act like coiled springs, Right Side of the Chart is not a day trading site. Day traders, by definition, only seek relatively small profits on very quick, intraday trades and close out all positions by the end of each trading day.

Right Side of the Chart is not a broker dealer. The market commentary and trade ideas shared here are for illustrative purposes only. None of the content published on the site, including the trade ideas, should be construed as a solicitation to buy and sell securities. Those associated with Right Side Of The Chart, including Randy Phinney, may or may not have positions in some or all of the trade ideas discussed here. Please view our disclaimer for additional information.

Right Side Of The Chart (RSOTC) offers both free and premium content. Free content includes access to some (but not all) general market commentary, educational articles and trading tips, as well as unlimited access to the archives of all past market analysis*, videos and closed trades. (*All posts related to closed trades are immediately released as free content with premium market analysis available to the public after a limited period of time).

I find these archives to be a very useful tool in my trading as I can look back to study the price action of a particular stock, ETF, or technical pattern during various market cycles. This allows me to get a feel for how certain stocks or ETFs have acted in the past and often serves as a valuable tool when trading those specific securities or price patterns going forward. Another reason for archiving every single post made on RSOTC, including all trade ideas, both winners and losers, is to provide a means for reviewing the performance of any or all trade ideas posted since the inception of Right Side Of The Chart, from the trade setup and/or entry to the completion of every trade & all of the updates posted along the way.

As RSOTC provides trading & investment ideas geared towards various trading & investing styles; from active, short-term traders; typical swing traders; trend traders; and even long-term investors, being able to view all notes & charts associated with each trade, from setup, entry, and completion (profit target hit or stopped out f0r a loss) is the best way to get a feel for the overall performance of the trade ideas shared on RSOTC that mesh with your unique trading style.

There are a few aspects of Right Side Of the Chart that I believe set it apart from most other trading & investing services:

  • Integrity: Honest, relevant & useful analysis without misleading or deceptive claims of guaranteed success or some easy way to beat the market with minimal effort.
  • Quality of Trade Ideas: No other service, be it another website, newsletter, etc.. matches the overall performance of the trade ideas that have been posted on RSOTC since the site was officially launched on Jan 1, 2012.  Every trade idea ever posted, winners and losers, are indefinitely archived and easily accessed for both accountability as well as an educational resource to reference the past trading history on specific stocks, ETFs or technical patterns.
  • Explicit entry points as well as explicit exit levels on all trade ideas, which are defined in well in advance. You won't find after-the-fact, hindsight analysis here other than to point out a mistake made or lost opportunity as a educational example, as the market is an everlasting teacher. To loosely borrow on a quote from Ralph Waldo Emerson: Perfection in trading is a journey, not a destination.
  • Straight-forward analysis. No fluff or extraneous "fillers"-  just clear, concise & actionable trade ideas and market analysis.
  • Timely and actionable trade ideas: Although a particular stock or index my be tracked for months or even years, trade ideas are often posted as close to breakout or objective entry as possible, along with clearly defined entry & exit criteria.
  • Skin in the game: Professional, full-time trader since early 2007.
  • Experience. Business major graduate, former stock broker turned full-time trader.