The TQQQ Trading Strategy beat the QQQ with 3 TQQQ buys in January and saw massive swings. However, the strategy ended up down 9.87%.
January saw a steep decline in the market. If you follow the market at all or just checked your portfolio value, you were most likely looking at a massive dip in your portfolio value.
There was, and still is, a lot of fear in the market. We have inflation fears, interest rate increases to contend with, and Facebook dropping $232 billion in value overnight.
If you traded the TQQQ Trading Strategy, you were not immune to the gyration of the market. As a result, at times, it was very stressful.
However, my intent with the system is to trade it 100% mechanically, which I did. The outcome was the following:
- By trading robotically, I didn’t lock in the maximum system drawdown for the trade of -17.41%.
- By trading robotically and using mean reversion, the loss for the system was -9.87%. By comparison, over the same time period of the trade, a buy-and-hold of QQQ would have lost -10.88%. The TQQQ Trading Strategy beat the QQQ during this brutal market period.
- From a dollar perspective, using $25,000 of capital, the TQQQ Trading Strategy would have lost $2,467 versus the QQQ’s loss of $2,720.
The TQQQ Trades that Beat the QQQ
Here is the chart that shows the trades during this period. The system made three (out of a maximum of four) over four weeks.
The strategy made three purchases based on the Green Bar signals. I was hoping to bring the average cost down with one more buy, but that never materialized.
It will be interesting to see where the market goes from here. I get a lot of emails asking where that might be.
My response is always that I have no idea. That is why I trade a system based on clear rules. But unfortunately, no one has a crystal ball.
Just look at the crash when COVID hit. No one would have thought that the market would have gone on the tear that it did. As a trader, you will never know.
All you can do is trade based on a system and let the rules dictate your actions.
One of those rules, an essential rule for the TQQQ Trading Strategy, is to only use a small percentage of your capital on a risk system. I personally only use 3% to 5% of my capital on this strategy.
TQQQ Trading Strategy Performance since February 3, 2020
A $25,000 allocation to the TQQQ Trading Strategy on February 3, 2020, has increased to $48,050. That is an annual return of 38.51% or a net profit of 92.2%.
Compared to the SPY, a $25,000 allocation turned into $35,723. That is an annual return of 19.48% or a net profit of 42.89%.
Drawdowns with the TQQQ Trading Strategy continue to be good, with a maximum system drawdown of -17.68% compared to the maximum system drawdown for the SPY of -33.72%.