in this video I'm going to give you the information that you need to trade the
TQQQ on the daily timeframe in this video we're going to cover some ground
we're going to look at what the TQQQ is what it is not when to trade it and
when not to trade it the TQQQ is a leverage product which means there is
more potential reward and there is more potential risk so it is vital before you
trade this instrument that you understand how it has performed in the
past and what it is likely to do in the future this is a chart of the TQQQ
since its inception now we have about nine and a half years worth of data and
we know a few things already the TQQQ has not been tested in a serious bear
market so far and so it remains to be seen how it will perform however what we
do know is the TQQQ has performed well relative to the QQQ which it is
the unleverage version of. With the TQQQ and leveraged ETFs in general we have
a few things we have larger price increases when the price rises sharply
we have smaller decreases when the price falls sharply and we have volatility
decay and higher expenses so we can see here that what the TQQQ is trying to
achieve is three times the return of the QQQ over a single day
it makes no promises for what it is going to do over the long term so in
order to develop a training strategy we need to understand how the TQQQ has
performed historically we know what they're trying to do but let's see how
they've actually done so one thing we know we have got a lot of with the TQQQ
is a strong uptrend and I've got an example on the
screen here from 2019 now we can see in this case the TQQQ returned 4.1 times
the return of the QQQ over the same time period because remember there are no
guarantees about the amount of leverage over any time period greater than one
day now on the screen you can see a typical example of what happens in a
sharp market fall and there have not been that many of these over the course
of the TQQQ's history however there have been a few and in this case what
we're getting is 2.5 times the leverage over this time period so in fact the TQQQ
declined less than it should have done if it was exactly three times
leveraged now in this example we can see the other side of the TQQQ this is
price decay when we have a choppy market we see that the TQQQ declines faster than
it should do compared to the underlying QQQ then this is the danger this is the
problem with leveraged etfs if we just sit on them we come to periods like this
and we can see our advantage disappearing we can see from this
analysis that we have to take advantage of the strong price moves that
historically we have had in the TQQQ so what I've come up with is to use
momentum momentum is an indicator that measures the change in clothes price
over a fixed period so what we can see is that we know if momentum is crossing
the zero lines its retraced from the relative recent weakness and we're going
into a period of relative strength we can use this and we can have a look at
the chart here and see that all of the big moves are almost all of the big
moves are preceded by a crossover in momentum now there's another factor that
I'm going to use in this trading strategy is something that I've looked
at before and this is volatility now I put a video out recently
they on a video called the volatility retracement strategy there's a link
below this video and on the screen at the moment if you want to check that
video out and how I'm going to use volatility this strategy is very similar
when we are trading long we want to limit the amount of volatility that's
going on in the market now on the screen at the moment I have the inputs and the
results of this trading strategy now this is a tradinformed back test model
it is a way to test all sorts of different trading strategies if you want
more information there is a link below this video and you can also click the
link on the screen so I'm gonna go over some of the inputs but I'm not going to
do it in detail because I'm going to record another video that will go into
detail about how I developed and optimize this strategy so stay tuned for that
video so what I am going to show you is we've talked about the entry entry is
one part of a trading strategy but the exit is just as important if not more
important so we have a number of different exits we're using a profit
target based on the average true range so it adjusts for volatility and
we're using a high profit target of 15 and a stop loss of 1 times the ATR so
theoretical reward to risk of 15 to 1 however, we have two other ways to exit
this position now the first one of these other ways is the Tradinformed
strength close and this is basically two consecutive days with at least a minimum
daily gain in this case 3 percent now 3 percent is quite a large daily gain for
most markets but of course the tqq often does that so we have a nice way to get
out when we've had a decent gain we also have a type of trailing stop but this is
actually based on the close price so it is the cumulative price decline from the
recent high so if we get to a certain point close to
close we've declined by more than in this case 10% then we will also close
the position so we've looked at entries we've looked at exits for this strategy
we have also have a filter I'm using a set number of periods of 11 this is 1.5
times the standard deviation of the average amount of volatility and
volatility I'm measuring by the standard deviation of the daily change you can
also see here I've got a short volatility filter now I said there's not
going to be many short trades and indeed there isn't but there may come a time at
some future point when we do want to short the TQQQ impossible as it is to
imagine at this time as it sets record new highs practically every day but
there may well be a time so we do have a function to model short trades as well
however at this time, the model is set to long only, I said at the start of this video I wanted
to show the difference between trading the TQQQ and the Q's so I'm going to
show you exactly how to do that I'm gonna go here look at the historical
data here on the left and a spreadsheet here containing the Q's I'm just gonna
copy and paste that into the model here and click on start back tests and we
could see that we've automatically got a trading strategy that in all honesty
performs pretty similar which is a vote of confidence in the TQQQ of tracking
pretty well because i developed it on that market we only need to make a
couple of changes to reflect the smaller daily movements and we have a strategy
that actually looks very similar indeed using exactly the same profit targets
periods and amount of volatility so we can see here that we've actually got a
net profit that is similar now one of the reasons
we are getting a similar amount of profit is because we're using the
average True Range to adjust the stop loss and profit target and consequently
the position size so I'm using what shows up is here is three times at the
leverage I hope you've enjoyed this video on the TQQQ as I mentioned
earlier stay tuned for the next video in this series I'm going to delve deeper into
how I develop this trading strategy on the TQQQ how to optimize it and what
are the good points and the bad points about this trading strategy if you would
like more information if you'd like to see more videos like this please hit the
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