My Current Trading Strategies
Refinement of Trading Strategies
For trading strategies to work they need to be given time to work. Jumping in and out of different strategies can be detrimental to performance
The reason is that each strategy – to be traded successfully – needs to have your 100% commitment and belief that it can work over the long-term.
If you don’t have that commitment, then simply buy and hold and move on.
My market and trading beliefs set the stage for my trading style. That is why I recently had a look at what I was trading and solidified it for the long term. This post will explain what I am trade in my own trading account.
I also have a retirement account and pension plan that is not part of this, but is figured into my overall strategy.
Strategy #1: TQQQ Trading Strategy
The first strategy I trade is the TQQQ Trading Strategy. I have studied this strategy extensively, going back as far as the TQQQ goes (2010) to see exactly how it would have performed if I stuck 100% to the rules.
That is where the equity chart below came from – tracking each of every trade the system took (73 trades) to understand how it performed. The results are good:
I also wanted to get a deep understanding of the drawdowns that the system generates when compared to a buy and hold of the S&P 500. My interpretation is it is better than a buy and hold:
The strategy – which I have made available through a paid membership site – is a mean reversion strategy. It stays in cash, except when the TQQQ is primed to mean revert to the upside. In other words, it takes advantage of pullbacks in the ETF and sells when it eventually reverts back up to the mean.
I like this strategy for the following reasons:
- It is not always in the markets. When conditions are not prime for buying TQQQ, the system stays in cash. This protect capital and only puts it to work when conditions are prime for a move to the upside.
- It is easy to trade. I use TradingView with a custom indicator coded in that tells me exactly when to buy and when to sell. There is no chance for emotion to ruin my performance.
- I can use market-on-limit orders, which means when the system triggers I can enter an order into my broker that instructs it to buy or sell the TQQQ at the closing price.
- It buys in 25% chunks. By buying 25% chunks, the system can take advantage of multiple buying opportunities which can help to maximize gains.
- It has performed very well. Between 2010 and 2018, the strategy achieved a CAGR of 17.74%. Compare that to the 11.57% return a buy and hold of SPY (with dividends reinvested).
I have committed $135,000 of my own money to this strategy. If you want to see how it performs, consider signing up using the link below.
Strategy #2: Stocks on the Move
The second strategy I use which once again is mechanical in nature, is Stocks on the Move.
Stocks on the Move is a system created by Andreas Clenow, and uses momentum to determine the best stocks to hold in the S&P 500.
Stocks that rank high using a momentum calculation are in a strong uptrend.
The ranking is the heart of the system. Clenow uses statistical calculations based on prior price action to generate a rank based on what is called the Modified Slope Value. That value is determined by multiplying an annualized exponential slope value and a coefficient of determination (r-squared) value.
The highest ranked stocks on that list become candidates for purchase because it shows which stocks are trending up the strongest. Based on momentum principles, these strong momentum stocks tend to continue to go higher.
The results, as presented in Clenow’s book are strong. This is a long-term system and must be used for years to get the best results (i.e. there will be periods of under performance). I am committed to it.
I like this strategy for the following reason:
- Has a market timing element to it. If the S&P 500 is not trading above the 200 day moving average, no new positions are bought. This keeps us out of the market when it is not in an uptrend.
- Gives access to the S&P500, but selects on the stocks that have the best momentum. The system makes sure that we are buying the stocks that are moving up the strongest. Stocks in an upward motion tend to stay in an upward motion.
- Uses strict position sizing. There is an algorithm that determines exactly how many shares to buy based on the volatility of the stock. This manages each individual stock risk, and spreads out the risk where it is most appropriate.
- Every aspect of the system is laid out – there is no room for judgement. Simply buy and sell when it tells you to buy and sell.
There are a couple of resources on this site that help if you want to start trading the system yourself. First, check out the summary page that gives an overview of how the system works.
Second, if you want to get an easy way to generate the ranking, then check out my TC2000 guide on how to set up Stocks on the Move.
I have committed $80,000 of my own money to this strategy.
Strategy #3: SPY / TQQQ MA 80
***Note: I have previously included a strategy called Momentum Surge. Going forward this strategy will not be a large component of my portfolio.
The third strategy I use is an ETF based strategy. This is a long-term strategy that holds only two tickers: SPY (S&P 500) and TQQQ (Nasdaq 100).
I will be writing more about this strategy on the site, but there are only a couple of rules to trading this strategy:
- If the SPY is trading above the 80 day simple moving average, put 50% of equity into SPY and the other 50% into TQQQ.
- When the SPY, crosses below its 80 day simple moving average, sell both TQQQ and SPY at the close on the same day the trend break occurs.
- Re-buy both when the SPY closes above the 80 day simple moving average.
The backtest results from Amibroker show strong results. Drawdowns are obviously a bit higher, but if you have the fortitude to hold through those drawdowns and let the system work the results are positive.
Here is an equity chart of the performance from November 2012 to Feb 15, 2019.
I have committed $80,000 of my own money to this strategy.
I hope to write more about these trades in the future. Sign up for the newsletter to get notified when I do.
These three strategies make up the bulk of the systems I use to grow my wealth. Any good trader will constantly review performance to make sure the systems still work.
In other words, there may be changes down the line, but the reasons to move from these three will need to be pretty substantial. Strategy flipping is a death sentence for a portfolio, and I want to avoid that at all costs.