Even though I write about and sell and eBook for the TQQQ Trading Strategy, I would never tell someone to only use that one strategy. In fact, it is important that traders use multiple trading systems.
I have had a lot of people buy the TQQQ Trading Strategy eBook recently. That is great and I thank each and every one of you.
What is especially interesting is that the system has been out of the market since December 23rd, which has avoided and protected us from all the recent volatility (storming the US capital, huge 4.5% down day in the TQQQ on January 4th).
The system is doing exactly what it is supposed to do: keeping us out of the TQQQ when the signals are showing overbought.
When the system is out of the TQQQ for longer periods of time, I get the question from readers about what to do when the system is in cash.
My answer is always two-fold:
- Since you should only be using the TQQQ Trading Strategy with approximately 5% of your capital, you need to have a plan for the other part of your portfolio, and
- Consider using multiple trading strategies in your portfolio.
The Problem with Only Using One Strategy Like the TQQQ Trading Strategy
There are a couple of problems with only using one trading strategy in your portfolio.
Will be Periods Where Some of Your Money is Not Invested
Depending on the system, there will undoubtedly be periods of time where the system moves to cash and is not invested in the market.
If the system is designed well, the periods when the system is in the market will more than make up for sitting on the sidelines (like the TQQQ Trading Strategy does).
This can be frustrating to people who feel the urge to always be in the market.
By using multiple trading systems, traders can have some parts of their portfolio invested while others sit on the sidelines.
Too Much Reliance on One System
The other main problem with only using one system is that you risk having all of your eggs in one basket.
All systems have periods of time where they don’t provide positive gains. That is a fact.
By using multiple trading systems, you can design your portfolio to always be invested depending on the market environment. This will reduce your portfolio risk and provide better opportunities for more portfolio gains.
Two Cautions When Combing Trading Systems
There are two main warnings I give people when combing trading systems.
The first is to be careful of system hopping. I have seen this called the “shiny object” syndrome or the ” hey look, squirrel” effect.
What it means is getting distracted by something else in the pursuit of the holy grail of trading systems. You decide to invest in a suite of trading strategies, but only give it a few weeks/months before discovering something new on the internet and deciding to give that a try.
ALL trading systems need to be traded for at least 1-year to see the performance profile play out. Short-term anomalies always happen. To get the full effect of the TQQQ Trading Strategy, I recommend people commit to using it for at least a year. Start small, but give it time to do what is was designed to do.
The second caution, is that you should get comfortable trading one system before you move on to the next one.
Any trading systems have a learning period. You need to set up the signals in your trading/charting platform, get used to how the signals work, how and when to buy and sell, etc.
I recommend working on one system at a time until you get used to that system, and then move on to the next.
What Other Trading Systems to Consider?
This is the million-dollar question right? So what systems, other than the TQQQ Trading Strategy should you use?
Of course I can’t give specific recommendations. However, here are some types of systems you could consider:
Passive Buy & Hold
A real simple method is to use a passive investment in the bulk of your portfolio, and then supplement with something like the TQQQ Trading Strategy.
Trend Following on Equities
Another type of system you can consider adding is a trend following system. I have written on this blog about a supercharged index investing methodology that has shown good performance.
I made some tweaks to it by using SPY, MDY, and QQQ. It also includes a circuit-breaker that pulls money from the market if the SPY drops below the 10-month moving average. This system has done better than the SPY both in performance and drawdown.
Leveraged Buy and Hold
Another mechanical system, that has the potential to add some aggressive returns to your portfolio is from “Hedgefundie’s excellent adventure Part II: The next journey” thread over at Bogleheads. If you have a few hours read through the 1000’s of posts.
This aggressive system invests 55% in UPRO (3x leveraged S&P500) and 45% in TMF (3x leveraged 20+ Year Treasury bonds). I won’t get into too much about the system here, other than to say it provides leveraged protection using TMF while capturing market gains with UPRO.
Here is how that system has done. Check out the returns, with similar drawdowns compared to an equal investment into the S&P500:
If you are a robotic type investor, then consider using multiple trading strategies to manage your portfolio.
The benefits can be huge, and will help manage issues you may have with some systems like extended periods of time out of the market or systems ebbing and flowing with performance.