This is a philosophical question I suppose I could put in the general r/stocks subreddit, but given that swing traders are active traders who can exit positions after just a few days, I thought the idea might appeal more here if it has merit.
This proposal is pure speculation -- betting plain and simple.
The set-up ideally uses a margin account.
Sometimes you have a strong sense of which direction the market will head the next day. Let's say you think tomorrow the market is likely to rise.
Establish your risk tolerance ... what percent or amount am I willing to gamble on that opinion? Say it's $100. On a $5K position, thats 2%
Buy a leveraged fund aligned with your speculation -- a Bull 2X or 3X in this case. Immediately (or as part of a Sequence Trigger order with the buy) set an OCO order with 2 legs:
a) a trailing stop keeping your maximum loss at or below your risk tolerance (2%)
b) a MOC (liquidate at EOD)
If your speculation is correct and the ETF doesn't reverse and trigger your trailing stop, the profits are collected at the end of the day, the margin balance is repaid, and your interest cost is nothing. The position rises 2.25% -- you net $125.
If your speculation is incorrect, you'll lose the amount you decided was your maximum ($100).
Obviously (hopefully it's obvious) sustained success with this approach demands that your accuracy has to be sufficient such that total gains > total losses.
Real example from my trade today:
I bought 100 shares SSO (Bull 2X) at 1:50AM for about $6K margin
Stop loss set at 1.5% ($90 risk)
Currently SSO is up 2.79% since my buy (gain: $180)
The position will close at 4:00PM today, settling the margin balance..
I will not make speculation every trading day--only in front of days where some external factor gives me confidence about general market direction. Today it was expected bounceback from yesterday's Fed impact + MSFT earnings. If I was more confident in the tech sector i might have invested in QLD (which is up 6.6% on the day) or opted for the 3X bulls. As this is experimental for me and I wasn't super confident about market direction I played it a little safe.
Again, so it is clear. This is pure speculation. Risk management is essential.
I welcome your thoughts.