I thought I would share this in case it might help someone......
So I mostly trade ETF's and in saying that it is mostly international ETF's due to liquidity and range of options. All in all I do OK trading this way.
Recently I have been dabbling in crude oil ETF's because I wanted to have more of my portfolio in the commodities asset class. I have been shorting crude (SCO - Proshares Ultrashort Bloomberg Sub Index) and finally on Monday I was set too make some money from it. By the time the markets opened crude oil was down about 40% so being a double short I was expecting a big pay day.
What actually happened was SCO started about 16% up but then started dropping. Obviously I had no idea why this was happening which is what scared me the most. Luckily I was already up on this trade previously so I decided to take some profits. As I was about place the sell order I thought why am I only taking profits if I don't understand why the underlying asset is not affecting the ETF in the way I think it should? I should get out completely. So I did.
In the light of day I did some research on oil futures contracts and the sub index I was actually trading against. Something I should have done before placing an initial trade. After finally understanding how the index worked and accordingly how the ETF should behave I decided my initial decision to purchase was correct but my initial reasons were seriously flawed. With my new information at hand I decided I wanted to get back in (hopefully for somewhere around the same price I got out). My reason for wanting in was justified but my timing was not there. It opened 38% higher which I was not brave enough to buy into and ended up closing 52% higher for the day.
If I had have taken the time to understand the underlying asset and more importantly what the ETF is tracking I would be up over 60% this week. I still walked away with an OK profit but I could have made a loss just as easily and not understood why. I think part of my problem as well was I was originally looking for an ETF that would track crude oil instead of trying to learn about oil futures contracts and while some article or website pointed me in the direction of SCO I should have delved deeper which would have forced me to understand futures contract anyway. No shortcuts.
So I mostly trade ETF's and in saying that it is mostly international ETF's due to liquidity and range of options. All in all I do OK trading this way.
Recently I have been dabbling in crude oil ETF's because I wanted to have more of my portfolio in the commodities asset class. I have been shorting crude (SCO - Proshares Ultrashort Bloomberg Sub Index) and finally on Monday I was set too make some money from it. By the time the markets opened crude oil was down about 40% so being a double short I was expecting a big pay day.
What actually happened was SCO started about 16% up but then started dropping. Obviously I had no idea why this was happening which is what scared me the most. Luckily I was already up on this trade previously so I decided to take some profits. As I was about place the sell order I thought why am I only taking profits if I don't understand why the underlying asset is not affecting the ETF in the way I think it should? I should get out completely. So I did.
In the light of day I did some research on oil futures contracts and the sub index I was actually trading against. Something I should have done before placing an initial trade. After finally understanding how the index worked and accordingly how the ETF should behave I decided my initial decision to purchase was correct but my initial reasons were seriously flawed. With my new information at hand I decided I wanted to get back in (hopefully for somewhere around the same price I got out). My reason for wanting in was justified but my timing was not there. It opened 38% higher which I was not brave enough to buy into and ended up closing 52% higher for the day.
If I had have taken the time to understand the underlying asset and more importantly what the ETF is tracking I would be up over 60% this week. I still walked away with an OK profit but I could have made a loss just as easily and not understood why. I think part of my problem as well was I was originally looking for an ETF that would track crude oil instead of trying to learn about oil futures contracts and while some article or website pointed me in the direction of SCO I should have delved deeper which would have forced me to understand futures contract anyway. No shortcuts.
