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