We’ve started putting the Full Stochastics indicator on some of the charts we post in the weekly wrap up. The reason being is that the indicator measures the current price level compared with the high-low range of preceding trading sessions, usually 14. Although this is a very cursory glance at the indicator, the XPP chart is a good example of using this indicator to trade this ETF. We’ve traded this ETF before and have both won and lost, we think it might be because we were trying to gauge the price movement of the leveraged ETF based on the underlying index, which may be incorrect. These leveraged ETFs are a beast of their own and may require a different approach. The Full Stochastics seems to give a good indication of the short-term trade while combining it with the MACD indicator gives a better indication of the long-term trade.
We’ve included a few other charts of leveraged ETFs below. Some ETFs seem to track along with the Full Stochastics nicely while others don’t pay much attention to it. TNA (Russell 2000), INDL(BSE) and ERX (small cap energy on Russell 1000). We’ve only included US ETFs as they are much more volatile and have much more volume than their Canadian counterparts.
The best time to combine these indicators is after a major sell-off (which seems pretty obvious) as the indicators will confirm the price movement. Next, should the Full Stochastics be below 20, the best time to buy isn’t necessarily at the bottom, but at the middle of the month, that way you reduce your chances of being whipsawed.
Conversely, the same indicator does NOT seem to work with the INVERSE ETF, FXP. (Though, this might change in a bear market.)
