The FOMC and our ProShares UltraShort Dow30 (ETF)(NYSEARCA:DXD) Trade

March 18, 2015, 13:05 pm ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Stock Traders Daily, through a strategy called the Strategic Plan Strategy, has recommended that clients buy ProShares UltraShort Dow30 (ETF)(NYSEARCA:DXD) These trades were initiated in the first week of March, according to the rules set forth in the Strategic Plan Strategy.

The Strategic Plan Strategy is a rules based strategy that has no correlation to the market.  At least, since 2009 when the strategy was initiated it has demonstrated little to no market correlation.  The R squared of the Strategic Plan Strategy, as a result, is at or near zero.

Typically, when markets rally as aggressively as ours has since 2009, strategies with no market correlation tend to underperform dramatically, but that is not the case with the Strategic Plan Strategy.  Instead, the strategy has demonstrated performance with no correlation, and that is often considered the holy grail of idyllic investment strategy in institutional circles.

The strategy is designed to trade around longer term inflection points in the Dow Jones industrial average, and when these trades were initiated the Dow Jones industrial average was flirting with the longer-term resistance lines we identified.  By rule, and in line with the same trading channels, the objective is to take advantage of the oscillation that takes place in natural cycles after resistance lines (or support) are tested.

Although it is not always true, typically we expect the market to decline from resistance to support within those established channels so the objective would be to take advantage of the oscillation down towards support now that resistance lines have been tested.

Our stated longer term support level for the Dow Jones industrial average is 17,000, but every week that level increases slightly because the market is in an upward sloping longer term channel.

If the market falls towards 17,000 as our longer term trading channel suggests the objective of this strategy would be first to secure gains from the short positions that we are holding but second to initiate new trades around the longer term support level accordingly.  The objective is absolutely to take advantage of oscillations between the longer term support and resistance levels we have identified, with integrated risk controls.

The risk controls we integrate into this strategy are based on our longer-term inflection points, for example.  In this case we're talking about 17,000 as being longer term support this week, so if we were to have initiated a trade near 17,000 and 17,000 began to break our risk controls would logically kick in.

The rules that we abide by suggest that we initiate trades near these relative extremes and that allows us to keep our risk controls tight.  Trading does not always go our way, sometimes we do incur stops, but because this strategy is capable of making money when the market increases or when the market declines, and because it has done that in the past, it's correlation to the market is at or near zero.

Disclaimer: this is not a recommendation to buy or sell DXD or the Dow Jones industrial average.  We're not recommending trades of any sort through this article and every investor should consult his personal financial advisor before making a decision to invest money.  Serious losses can occur and risk assessments must be done before any trading decisions are made.

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