Quote from trader2012:
bwolinsky: Thanks for the reply. What do you think I should in this case? I do not have a pairs strategy for this TZA I've been holding. It is now at $23.XX and my avg is $28.57. Do you think I should sell it now?
I've never optimized my pairs strategy on TZA or TNA, but have on SDS and SSO but not with the recent variant I use on QID and QLD.
The Pairs Strategy on the NDX derivatives QID and QLD I have uses a 7% drawdown as a stop and holds on average 5 daily bars, and that's a little more than 10% on a 3x instrument, so if you are down that far, I wouldn't say holding it where the market is at wouldn't make some money over your loss, but you've held it a little too long and negative compounding set in, so I doubt if you'll see it go to your breakeven price anytime soon. I'm saying you might get less loss if it rises, but it's probably not going to your breakeven and if it is the loss that worries you about when to get out, trust me, it's a losing trade, so being greedy and already way past the mark a normal trader would hold those for, you need to say something like another 5% and I'm out, or another 7% and I'm out. Like that. The 3x loss on those is not ever going to compound to your breakeven, so look for a slight pullback, then exit on higher lows or lower lows but that isn't easy to identify without automated programs.
I think you should investigate a pairs strategy for yourself before trading those instruments any longer, but I'm just saying, my rule of thumb is 5-7% on 2x instruments 1.05^(3/2)-1 to 1.07^(3/2)-1 on 3's is at the point I say uncle. Being far past that, this exceeds those thresholds by a wide margin, and if you're gutsy you might hold them, but this market is in a bull trend, and if we don't cross new highs on NQ past the 2434 barrier 40 points away, then it will go down, but without systematic analysis of a system you've built and trust it's not advisable to keep holding that past a reasonable stop level similar to the magnitudes I've shared with you about my pairs system.
I ask you, personally, what your thesis was when you made the trade? Technical? Fundamental opinion? Pure Spec? If it's Tech or Spec, your stop loss is the issue here. Fundamental opinion has no place in 3x instruments because they are trading vehicles, not investments.
