Best ETFs for High Volatility Day Traders

When day trading, many people think of trading penny stocks or the high flyers of the day.

Well in this article I am going to discuss the ETFs which I constantly see on my scanner. In full disclosure, I do not day trade these, because I prefer slow, boring, low volatility stocks at this point in my trading career.

However, that does not mean they can't work for you and your trading style.

Why Trade ETFs?

Let me ask the very obvious question of why someone would want to day trade ETFs. Over the years, ETFs have been marketed as an investment vehicle geared toward long-term investors. These are not perceived as opportunities for active traders or day traders.

The thought is you invest in ETFs as a hedge or as a mechanism for gaining exposure to a particular broad market like the S&P. Well, let me give you the three Vs of why ETFs can work for volatile traders.

Volume

The first reason ETFs are a great opportunity for volatile day traders is the level of volume. These securities do not lack interest, let me tell you. So, getting in and out of positions and doing so with tight spreads is not an issue. So, if you are scalping or making many trades per day, you can do so even with a large position.

Volatility

This again speaks to why I do not trade the most popular ETFs for day traders, but if you are looking for volatility, you will surely find it as the market now offers 2x and 3x leveraged ETFs. This means you can get similar price movements of penny stocks while still trading a security with a value north of $20 or even $30 bucks.

Variety

The ETF market has progressed so much in the last 5 years that you can essentially find an ETF for anything you are trading. For example, you can not only buy ETFs that track a specific market, but you can also invest in ETFs that are the inverse of a market.

Therefore, if you feel the market is tanking, you can purchase an ETF that increases in value as the market is dropping. Essentially, investing in an ETF that gives you the same effect as opening a short trade.

What are the Best ETFs for Day Trading?

Now that we have covered why ETFs can be a great opportunity for day trading, let's dive into the ones I see on a daily basis.

#1 - BRZU - Direxion Daily Brazil Bull 3x Shares

The BRZU provides exposure to mid and large-cap Brazilian stocks. Sounds pretty straightforward?

Well, the excitement comes in as the ETF has a 3x component as well.

Now, if you look at the performance of the fund over a longer time horizon, the numbers aren't great.

BRZU Trade Performance

BRZU Trade Performance

The last year has been great, but if you have been in the ETF for 5 years and after factoring in fees, things are not so rosy.

So, how is this possibly a viable idea for day traders?

The answer is simple, the volatility and liquidity as stated earlier.

BRZU Price Movement

BRZU Price Movement

For me the times I have traded the BRZU, I wasn't thinking about investing in the Brazilian market, I was more focused on a clean breakout or pullback trade intraday that had real potential.

How the BRZU Responds to the Broad Market

Even though the BRZU is based on stocks from Brazil, it's price action will closely mirror that of the S&P ETF.

BRZU versus SPY

BRZU versus SPY

#2 - NUGT Direxion Daily Gold Miners Bull 3X Shares

The NUGT provides those of you looking to gain exposure to gold a great opportunity. Instead of buying the precious metal directly or buying a basket of gold stocks, the NUGT allows you to invest in the gold market.

Like BRZU, the Direxion Daily Gold Miners is full of high volume events. In addition, the ETF trades at 3X the move in the gold market.

This means the price action will vary wildly and provide great swings for volatile day trades.

NUGT Price Swings

NUGT Price Swings

As you can see in the above chart, the price swings are vicious. You have to make sure you know what you are doing before attempting to day trade NUGT. Most importantly, you are going to want to honor your stops!

#3 - DRIP Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X

At this point, you are clear on 3X movement and ETFs from Direxion.

It may feel like I'm doing a promotion for them, but I am not affiliated in any way. These are just the ETFs I see moving each day in the market.

DRIP Return

DRIP Return

That's right - a whopping 256% return for the year. There is something about that large of a return that is in direct conflict with an ETF. The DRIP is essentially a short of the oil market and as you can see business is booming.

It just does not add up, if you ask me.

But again, I'm not here to judge, just to relay what's available in the market.

DRIP Price Move

DRIP Price Move

So far we have displayed some wild price moves in the other ETFs, but this is a 17% move in a matter of hours.

Now, day trading does not have to be this volatile and you can easily day trade stocks like Microsoft or IBM.

However, if you are looking for the most volatile opportunities within the ETF realm, these three will give you a good head start.

How Can Tradingsim Help?

If you are interested in trading any of the ETFs discussed in this article or other leveraged ETFs you will need to practice trading. This is where Tradingsim can provide you a risk-free environment to practice trading these ETFs 24/7 until you find a system or strategy that works.

Al Hill Administrator
Co-Founder Tradingsim
Al Hill is one of the co-founders of Tradingsim. He has over 18 years of day trading experience in both the U.S. and Nikkei markets. On a daily basis Al applies his deep skills in systems integration and design strategy to develop features to help retail traders become profitable. When Al is not working on Tradingsim, he can be found spending time with family and friends.
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