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Author: Zeelotes Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 254159  
Subject: Trading 3x ETF Pairs Date: 12/15/2012 5:09 PM
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Thinking about the best posts in 2012 got me thinking about the one post that I made that experienced a few recs.

2 Are Leveraged ETFs Horrible Investments? 82 Zeelotes http://boards.fool.com/Message.asp?mid=29761309

Here is a very simple way to trade the 3x ETFs that I thought some of you may find interesting. I recall from my post back then that the vast majority of responses sought to negate the benefit of using 3x ETFs. A pity since they have so much to offer if you are willing to take the time to explore them in more detail.

From the beginning of the Direxion 3x ETFs until now this strategy has produced a CAGR of 51.37%. The period is 11/5/2008 to present.

You start on the first day they are available and rebalance every FOUR weeks -- that is 28 market days. You can rebalance every two to eight weeks and the returns will be good, but I prefer four weeks for the sake of convenience and ease.

When VXO is at or above 19 you short two 3x ETFs at the same time: FAZ and FAS. At each rebalance date you check whether VXO is at or above 19 and when it is below you enter IWM instead.

94% of the time holding these two short produces a positive return using this method. In other words, only 6% of the four week periods produced a loss. In contrast, 65% of the four week periods holding IWM are positive.

The DDD3 is 0.51%.

The Dow has a return of 7.96% over the same time period.

What do you think? Worthy of a second look?
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