Day Trading With Leveraged ETFs

Leveraged ETFs: Not For the Faint of Heart

Leveraged ETFs are exchange-traded funds that use a combination of derivatives and debt instruments to double or triple the movement of an underlying asset or index that it tracks. Leveraged ETFs have grown in popularity with the day trading crowd because the funds can generate returns very quickly—provided, of course, the trader is on the right side of the trade.

In this article, we will look at some of the most popular leveraged ETFs on the market and discuss strategies for minimizing losses when using these ETFs. Be aware that while all trading carries risks, leveraged trades are far riskier. These funds should only be tackled by an experienced trader with the stomach to handle losses.

Owing to their leveraged nature, these funds are incredibly volatile and risky.

Know Your Components

First and foremost, before trading these volatile instruments, you must be aware of what they track. With two-to-three times the potential of upside and downside moves, even a slight miscalculation on their underlying properties can wreak havoc on an otherwise winning trade. Below are some of the most popular leveraged ETFs on the market and the asset or assets that they track.   




Ticker (Bull/Bear)






Direxion Daily Gold Miners Index Bull/Bear 3x Shares






NYSE Arca Gold Miners Index

ProShares Ultra Bloomberg Crude Oil/UltraShort Bloomberg Crude Oil   





Front-month WTI crude futures


Direxion Daily Small Cap Bull/Bear 3x Shares






Russell 2000 (small caps)


ProShares UltraPro S&P 500/ UltraPro Short S&P 500






S&P 500


ProShares UltraPro / UltraPro Short QQQ






NASDAQ Composite


Direxion Daily S&P Biotech Bull/ Bear 3x






S&P Biotechnology Select Industry Index


Direxion Daily Emerging Markets Bull/ Bear 3x






MSCI Emerging Markets Index

Day Traders Need Fundamentals

Even if you are planning on closing your positions at the end of the trading day, it would be wise to get a brief understanding of the fundamental factors that can impact these ETFs. Although technical analysis will probably be the main tool in your arsenal, fundamental factors from around the world, especially events that happen overnight, can dictate the direction of the trend the following morning.

Below, we'll discuss the fundamental factors that can affect some of the most popular leveraged ETFs.

Leveraged Gold Miners 3x

The Direxion Daily Gold Miners Index Bull 3x Shares (NUGT) and the Direxion Daily Gold Miners Index Bear 3x Shares (DUST) track the New York Stock Exchange (NYSE) Arca Gold Miner’s Index. This index is affected by geopolitical events, natural disasters, fluctuations in the U.S. dollar and announcements regarding U.S. monetary policy.

Key information releases to watch for when trading these two products are the Federal Open Market Committee meeting (FOMC) statements. The FOMC releases these statements about three weeks after each of the committee’s eight yearly meetings, and after monthly economic reports that can potentially impact monetary policy. Such impactful monthly reports include the Consumer Price Index (CPI), Employee Situation Report and retail sales reports. 

Long and Short Crude Oil 3x

The ProShares Ultra Bloomberg Crude Oil (UCO) and the ProShares UltraShort Bloomberg Crude Oil (SCO) track the Bloomberg WTI Crude Oil Subindex.  As such, they are affected by moves in oil prices due to geopolitical events and North American supply and demand.

Key information releases to track U.S. inventories are the American Petroleum Institute's “Weekly Statistical Bulletin,” on Tuesdays, and the Energy Information Administration's report, “This Week in Petroleum,” on Wednesdays. Another important information release is the Baker Hughes rig count, published every Friday at noon central time. 

Large and Small Caps 3x

The Direxion Daily Small Cap Bull 3x Shares (TNA), Direxion Daily Small Cap Bear 3x Shares (TZA), ProShares UltraPro S&P 500 (UPRO), ProShares UltraPro Short S&P 500 (SPXU), ProShares UltraPro (TQQQ), and the UltraPro Short QQQ (SQQQ), are all trackers of major U.S. benchmark indices.     As such, they are susceptible to the many macroeconomic factors that affect the U.S. capital markets. These can include the following:

  • Geopolitical events 
  • Volatility in international equity markets
  • Economic reports and Federal Reserve announcements
  • Earnings reports by major companies
  • Volatility in the bond markets and futures markets

S&P Biotech 3x

The Direxion Daily S&P Biotech Bull (LABU) and the Direxion Daily S&P Biotech Bear 3x (LABD) tracks the NYSE Arca Biotech Index and are susceptible to the same ebbs and flows of the American capital markets.  However, as they are concentrated in the biotech sector, keep an eye out for results from U.S. Food and Drug Administration clinical trials, mergers, and acquisitions of biotech firms, and earnings reports from the big-name biotech companies.

These large biotech companies include Gilead Sciences (GILD), Celgene Corp. (CELG), Amgen Inc. (AMGN), Regeneron Pharmaceuticals Inc. (REGN) and Biogen Inc. (BIIB).

Emerging Markets 3x

Direxion Daily Emerging Markets Bull 3x (EDC) and the Direxion Daily Emerging Markets Bear 3x (EDZ) seek to replicate three times the movement of the MSCI Emerging Markets Index. Although a guide on trading the MSCI Benchmark could fill a book, keep an eye out for overnight swings in commodities, the Asian and European markets, forex markets and economic news coming out of the index's constituents, as these factors can heavily dictate the direction of the next trading day.

Making Leveraged ETF Day Trades

Unlike most guides on trading, this one will feature no strategies on technical analysis owing to its subjective and after-the-fact nature. I will assume that the reader has already built a familiarity with the basic principles of technical analysis and can adapt those techniques to trading leveraged ETFs. Here are a few additional tips:

Set Stop Losses

Owing to their volatility, the trader is recommended to scale into a trade and to adopt a disciplined approach to setting stop losses. Furthermore, as big swings are quite common in these securities, set stop losses wide enough so that you do not get stopped out before a massive run in the direction of your hypothesis.

Do Not Hold Shares Overnight

Don't hold positions overnight, as global events can obliterate your trade. It is not uncommon to see leveraged funds gap down 5% to 10% the next morning. Your stop losses will not protect you in such instances. Either reduce positions or close them out entirely at the end of the day.

Follow Paul Tudor Jones

Famous hedge fund manager and trader extraordinaire, Paul Tudor Jones, had this piece of advice stuck to his office wall: “LOSERS AVERAGE LOSERS.” While averaging down is an excellent strategy for long-term investors and swing traders, averaging down on a losing trade in a 3x ETF is like throwing your money out the window.

Know the Key Dates

Every week or so, there will be a pivotal event that can affect these funds. For example, the oil ETFs tend to trade sideways in the minutes leading up to the Energy Information Administration and Baker Hughes reports. Depending on the overall trend, market sentiment and the prior week’s report, some traders like to place their bets on the post-report movement. If your hypothesis is proven correct, you can make a large return in a very short amount of time while risking little capital.

Check the Overall Trend

Finally, bear in mind that although day trading takes place over a time span measuring in minutes, the day's movements are indicative of the bigger picture. Use the daily, hourly and 15-30 minute charts to gauge support and resistance levels from the prior day's (week's) trading. Usually, an area of strong support and resistance that has been tested multiple times can prove to be a better entry or exit point than a level that appears during the course of the day. 

The Bottom Line

Leveraged ETFs are not for the faint of heart. Traders who can stomach the volatility can realize large gains (or losses) on their positions very quickly. That said, when trading these wild instruments, be sure to check the underlying asset that they track so you can have a sense of direction they will take each trading day.

Furthermore, traders who bet on these funds should have an adequate risk management strategy in place and be ready to close out their positions at the end of each market day.

Article Sources
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  1. Direxion. "NUGT DUST."

  2. Federal "Minutes of the Federal Open Market Committee April 28-29, 2020."

  3. ProShares. "UltraShort Bloomberg Crude Oil."

  4. ProShares. "Ultra Bloomberg Crude Oil."

  5. ProShares. "UltraPro Short QQQ."

  6. ProShares. "UltraPro QQQ."

  7. ProShares. "UltraPro Short S&P 500."

  8. ProShares. "UltraPro S&P 500."

  9. Direxion. "TNA TZA."

  10. Direxion. "LABD LABU."

  11. The Wall Street Journal. "NYSE Arca Biotechnology Index."

  12. Direxion. "EDC EDZ."

  13. MSCI. "MSCI Emerging Markets Index."

  14. Business Insider. "The 15 Best Things Paul Tudor Jones Has Ever Said About Trading."

  15. Baker Hughes. "Rig Count Overview & Summary Count."

  16. U.S. Energy Information "Petroleum & Other Liquids."

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