On the Divergence of Return Between L&I ETF & Its Underlying Product

Long time readers of mine know that I like to use picture to highlight my point, here's the specific scenario to clearly show the divergence of return if the path of return is followed.

Under the hypothetical scenario, it shows that even if the index return 10%, the 2x Leverage ETF loss 17.5% !
That is why L&I ETF is not meant for long term buy-and-hold strategy.  Just remember that.

Cheers and Happy trading!

Leveraged and Inverse ETFs (L&I ETFs)

A long-time local blog follower of mine who is also a retail stock market investor/trader told me he is very excited about the launched of L&I ETFs locally and asked me what should he watch out for. 

I guess after have been following the L&I ETF in US market since 2006, the number one question I always get asked by even experience traders is “how come I am correct in my forecast that the underlying index was up after 1 year but my leveraged ETF still lose money?”

For those of my readers who are too lazy to read the risk disclosure in the 99-page master prospectus please be warn of the high probability of divergence of the return of the underlying index and the L&I ETF! 

The daily return target of the L&I ETFs means that it is not meant for long-term buy and hold strategy (I am lazy to explain how volatility, compounding effect and path dependency affect the divergence of returns).  Otherwise you will join the many investors who ask the same question again after losing money even being correct in their forecast/prediction.

Cheers & Happy Trading !

The Science of Trading

A lot of people ask me about the scope of "The Science of Trading", here's my simple version, still work in progress, enjoy!