TQQQ Trading Strategy

TQQQ Trading Strategy

UPDATED: Instructions now included for traders and investors who cannot watch the markets throughout the day, but still want to trade the TQQQ.

The TQQQ Trading Strategy is a mean-reversion strategy.

It uses one of the most volatile leveraged trading instruments to capture short-term mean reversion swings of the Nasdaq 100 index.

I personally trade this strategy to grow my retirement account.


Traded Assets

The strategy is simple. It is either invested in the TQQQ or it is in cash.

Nasdaq TQQQ

TQQQ is a 3x ETF that tracks the Nasdaq 100 index. If the Nasdaq 100 goes up 1% in a day, the ETF should go up approximately 3%. It never works out exactly like that due to fees and slippage, but it gets close.

The risk is when the same index goes down 1% – the 3x ETF will then drop approximately 3%! That can be hard to stomach, hence the “Hair-Raiser” name!

By going into and out of TQQQ, the risk is managed by being in the market when there is a statistical opportunity for the ETF to mean revert higher, or in cash when the opportunity is not there.


Risk Management

Risk is managed in two ways. The first is by going to cash when the market action for TQQQ is not optimal. This is the first way that risk is managed in the strategy,

The second way the strategy manages risk is through position sizing.

When the TQQQ is prime for entry, instead of going all-in on a position, TQQQ is bought in 25% chunks. This slow accumulation of shares helps by giving us an opportunity to buy more if/when TQQQ continues to drop after we buy it. Statistically the TQQQ has shown to mean revert higher but not always after the first signal.

Hair-Raiser TQQQ Position Sizing

By buying in 25% chunks, the strategy is able to take advantage of multiple entry signals that can occur. The strategy provides for four opportunities to add to the position. Sometimes the system will only have a 25% exposure. Other times, it will be 100% invested.

My research shows that TQQQ tends to mean revert, and this strategy attempts to take advantage of that phenomenon, but with a safer and more systematic process.


How the Strategy Has Performed

The TQQQ started trading in 2010. I have been able to go back until its inception and test how the strategy would have performed going back the past nine years.

Granted, in backtesting terms that is not a long time. Dual Momentum by Gary Antonacci has results going back to 1950 posted on his website. Given the shorter history of TQQQ, that is what we have got to work with.

What have the annual returns been like for the strategy? Compared to a buy and hold investment in the S&P500 via SPY, the returns have been strong. On an annualized basis, the TQQQ Trading Strategy has achieved an 17.74% compound annual growth rate (CAGR) compared to the SPY’s 11.57% CAGR.

Below is the equity chart for an assumed investment of $100,000 in each of the two strategies (SPY buy and hold versus TQQQ Trading Strategy).

A $100,000 starting investment in the TQQQ Trading Strategy ended up at $413,301 versus a terminal value for the SPY of $258,944 (with dividends reinvested).

It is very important to note that the ride on the way up has been much bumpier for the TQQQ Trading Strategy. In other words, the TQQQ Trading Strategy is much more volatile. The losses on the way up are more dramatic than a buy and hold – you need an iron fortitude to be able to handle this strategy.

The best representation of that volatility is a drawdown chart that compares the drawdowns of the TQQQ Trading strategy compared to the SPY buy and hold.

As a reminder, a drawdown chart simply shows the peak-to-trough decline during the life of the portfolio. It represents the the measurement of decline from an assets peak value to its lowest point over a period of time.

As you can see, the drawdowns in the TQQQ Trading Strategy can be bigger, but nothing crazy compared to the buy and hold of SPY. It took an iron stomach to hold the SPY since 2010 just as it did with TQQQ. The benefit of the TQQQ Trading Strategy is that it is often in cash when the market is just not great to hold.

If you are interested, here is the drawdown on a straight up buy and hold of TQQQ. The returns are higher, but the drawdowns are brutal. Very few people can hold when they lose ~45% of their money in a short period of time! That is why I like my strategy; it reduces the drawdowns while still capturing better than SPY gains.

Don’t Buy and Hold TQQQ!

REMINDER: Robotic Investing and I are neither a broker nor an investment advisor, registered or otherwise. We are neither licensed nor qualified to provide investment advice. We are solely an informational site identifying strategy trade signals using automated algorithmic market analysis tools on a limited set of funds. If you are unable or unwilling to fully read and agree with our Terms of Use and Disclaimer, we ask that you exit this site immediately. Your continued use of this site and/or associated media shall be considered equivalent to your signature as evidence of your acceptance of our Terms of Use and Disclaimer.

What Subscribers Get

This is not a signal service. The way the system works, it would be very difficult for me to send out the signals when they happen, as that can be during the trading hours, as opposed to each evening.

As a result, what subscribers get is full instructions on how to set the system up on your own and trade it yourself. This means you will have to watch the market and your chart, but it is all laid out for you and easy to do once you get the hand of it.

Once you subscribe, you will get access to the following:

  • Detailed step-by-step instructions on how the system works. This includes how the system generates when to buy and sell TQQQ and when to hold cash.
  • Instructions on how to set the system up using TradingView, including Pine script. TradingView is a great charting package where all you need is a browser; not additional software to download.
  • NEW: Instructions on how to use other charting packages other than TradingView to trade the system. TradingView is a great package, but no longer required to trade the TQQQ Trading System.
  • NEW: The system works great if you have a full-time job and cannot watch charts throughout the day. Two sets of instructions are provided to members. The first is instructions on how to use the system to trade with real-time market data to buy and sell at the end of the day (for traders who can watch the markets throughout the day). The second is instructions on how to get the signals at the end of the day, and buy or sell TQQQ at the open of the next trading day (for traders who can’t watch the markets throughout the trading day).
  • Instructions on how to get alerts of when the system triggers.
  • An updated list of answers to FAQs as they come in.

This is a system I personally trade, which does not mean you should, and I am confident in its ability to grow my wealth. I am investing for the long-term (10+ years) and can stomach the volatility. If that sounds like you, then please consider signing up!

Ready to Sign Up?

The TQQQ Trading Strategy is a one-time payment of $39.95 (US). Get full access to the easy-to-trade system that takes advantage of the TQQQ’s mean reversion statistical tendencies.

Please head over to the Subscribe page to SIGN UP.