Quote from joe4422:
If you hold until it eventually reaches zero, yes it will work. The problem is if you get your short called in, and possibly at the worst time. If that happened you would book a huge loss.
Quote from Retief:
Let's try an example with YM, and for simplicity ignore commissions. Assume YM is trading at 10,000. You buy 1 contract at 10,000, with a target of 10,020, which is a target profit of $100 at $5/point.
The position goes against you, so at 20 points in the hole, i.e., at 9980, you double your position size to 2 contracts, and adjust your target to 10,000. If your target is hit, you gain $100. The first contract is closed at break even, but the the contract added at 9980 is in the green by 20 points.
YM keeps going down. When it gets to 9960, you double position size once again and add 2 more contracts to the two that you're already long, and adjust the target to 9980. If you're target is hit, you make $100. You lose $100 on the first contract, break even on the 2nd contract that was added, and gain $200 on the last two contracts that were added.
YM keeps going down. When it gets to 9940, you double position size again, by adding four more contracts for a total of 8 contracts long, and adjust the target to 9960. If the target is hit, you net $100.
YM keeps going down, When it gets to 9920, you double position size again, this time to a total of 16 contracts, and adjust the target to 9940. If your target is hit, you make $100. If not, well by now you know the drill, and after only four losers in a row, position size is starting to get a little too big for comfort.
Quote from clacy:
Clearly this is apples and oranges compared to the OP's question. He's not talking about doubling his position every time the Dow moves 20 points against him.
However, your point stands. Maybe a better example would be the Nikkei. It would suck to start averaging in to the Nikkei in 1991. You would still be getting your ass handed to you.
Quote from xif99:
What do you mean "get your short called in"? Who said anything about shorting anything?
What on earth are you talking about? I mean, yes, you're describing martingaling, but that's the only thing your example has in common with what I was talking about.
But I guess if you have big enough pockets to ride the YM down to zero, then that's an entirely different story.
That being said, if you were going to ride the YM down to zero, I sure as hell wouldn't be buying every 20 YM points.
Quote from Retief:
What on earth are you talking about? Let's have the specifics. You have big enough pockets to ride UPRO down to zero?
Quote from SomeYoungGuy:
You guys are arguing futures vs. ETF's. As long as the OP buys UPRO with cash not margin, he only needs a pocket deep enough to buy the shares in the first place.
If we buy 1 share each 10 points down, we will need ~$1050 (as it's trading at $140 right now) for the whole buy side of the strat.
The real, practical problem is that these geared ETF's have internal slippage and commission costs so they trend towards zero, both the long and the short geared ETF's do.
There's no free money, always risk. The risk here is will the SP500 move faster enough to profit, or will the ETF slippage eat you up.
Quote from Retief:
What is he talking about? The OP uses the term Martingale twice (emphasis added): "3x S&P, it moves fast. Just martingale into it as it goes down, but plan things so that you never use up all you money like idiots who martingale in Forex do."
Martingale means adding to your position as it moves against you.
Quote from Retief:
What on earth are you talking about? Let's have the specifics. You have big enough pockets to ride UPRO down to zero?
Quote from Retief:
You need to increase size as price moves against your position. When it gets down to $10/share in price, you would have bought 2 to the 14th power shares, or 16,384 shares.