DZZ Gold ETN - How to Short Gold by Going Long

By: Chris Vermeulen | Mon, Aug 18, 2008
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DZZ Double Gold ETN is a relatively new way to take advantage of gold price action. This gold fund provides double the movement that the GLD ETF or the price of gold does, providing bigger opportunities in the gold sector. I have just recently started to use DZZ ETN for trading and have found it to be very useful, which you will see in the charts below.

A Couple of Benefits of the New DZZ Gold ETN
The fact that it's a leveraged fund provides more of an opportunity to the small investor, as they can have twice the amount of gold exposure without having to use margin, pay interest, and open a margin account. While trading with leverage is a two sided knife, if done properly, potential higher annual profits can be obtained.

Another reason gold ETN's are becoming popular is because they allow gold traders and investors to trade both sides of the gold sector within their 401k, IRA and for Canadian their RRSP accounts. Being able to take advantage of the short side during bear market conditions, can double your annual return on investment.

Now let's look at our current charts and see how this fund can be used.

Gold Bugs Index - Monthly Gold Chart Breakdown

As you can see on the monthly chart, the gold bugs index is breaking down below our support trend line. We could be entering a much larger consolidation phase or maybe even a bear market. It really does not matter, as we can take advantage of both sides of gold (long and short). The short side actually has more potential in my opinion, but most traders prefer to trade the long side as it's what everyone learns first and feels comfortable with.

Gold Miner Stocks Index - Weekly Chart Breakdown

The gold miner stocks index has given us a breakdown, as well as showing that a short play is not fighting the current short term trend of gold. It is now testing support, which means short traders should tighten their stops to lock in more profits when gold decides to bounce.

Gold Bugs vs Gold Price - Weekly Gold Chart at Support

Gold stocks are testing a support level, as they have declined in value against the price of gold, showing that a large number of investors have been scared out of their positions and thus forcing gold stocks down more than normal.

DZZ Gold ETN - How to Short Gold by Going Long

Recently we had a buy signal for the DZZ gold ETN, which has provided an excellent low risk setup near the end of July. Currently the trade is up over 28% in just 3 weeks. While we look for the same type of setup for going short, there is one important point to note. When trading GLD or any other stock, index or futures contract to the long side it's important not to enter a setup with a steep vertical support trend line, as it generally will not continue for any length of time. But trading to the short side like this DZZ trade, the trend lines can be steeper, as prices generally drop much faster, thus pushing our Short Gold ETN fund higher.

This is just one example of how to trade gold to the long and short side, if you would like to learn more please visit my website: www.TheGoldAndOilGuy.com.

 


 

Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
- MB Trading
- OEC OpenECry
- The Fox Group
- Dorman Trading
- Vision Financial

He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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