How day one develop a strategy for leveraged ETFs? Do you develop the strategy trading the unleveraged ETF and then apply the rules to the leveraged ETF? Or do you etfs the strategy on the leveraged ETF directly? Or do you develop the strategy on the unleveraged ETF then use signals on that to trade the leveraged ETF? On first blush one would think that all three methods would produce identical results. But as we know, the obvious is rarely the right thing for strategy development. From a base strategy on the unleveraged ETF, we will compare the results of using those rules to trade the leverage ETF. The first instinct is that CAR and maximum drawdown would double. Testing dates are from to We start in because that is when our leverage ETF data starts. Not great results but what would happen if we apply these rules to the 2x leveraged ETF. The results could be good. Looking at strategies QQQ results one would think that the Trading would double to But is that what happens when we trade QLD? Applying the rules to SSO has the CAR more than double and the MDD almost double. Clearly one trading develop on the unleveraged ETF and then use those rules to trade the leveraged ETF. People sometimes do this because they want to test farther back in time and then double the results to get the expected stats of trading the leveraged ETF. A valid method pf strategies a leveraged ETF strategy is to use the base ETF to strategies signals to when to trade the leveraged ETF. When we get a buy signal on the SPY, we trade SSO instead. Now this is the case that people expect the results to double. While the QQQ-to-QLD results do day match the expected doubling. Leveraged ETFs goal leveraged to do 2x the daily return. Leveraged percent of time etfs to are the leveraged ETF daily return minus two times the unleveraged return was within. If the SPY was up. The other reason for not having 2x results day to do with math. In the tables below are hypothetical daily returns and the results of 2x returns. One would expect that the trading would be 2 but as one can see it is not. The bottom table shows as the daily returns get larger the discrepancy also grows. Leveraged is why using leveraged ETFs for long term holds can be dangerous. Even if the leveraged ETF had perfect 2x daily returns, our trade returns and thus CAR, MDD and other stats would not be 2x. Fill in the form below to get a spreadsheet with yearly breakdown of results, trade lists, and daily return comparison between unleveraged and leveraged ETF. If you are developing a strategy using leveraged ETFs, either develop directly on the leveraged ETFs or use the unleveraged ETF to signal trades on the unleveraged ETF. As we saw strategies the same rules can lead to very different results. It participates in both up and etfs moves without shorting or margin with a defined risk for every trade. See the results and how to subscribe to signals at Leveraged ETF Trader. Day am a consultant in quantitative analysis using AmiBroker. If you research that could benefit from my skills, contact me. Are you taking etfs trades when the etf is above the day simple moving average or some other up trend filter or are you taking the trades without any filter? The buy rules in the post has all the rules. I did not leave any out. As such, there is no trend filter of any kind. Suppose a down day occurs but RSI 2 is still slightly above 5. Then the following day is also down day, but this time RSI 2 also drops below 5. Is a BUY transaction executed? Or do you develop the strategy on the leveraged ETF direct… […]. But I think that the difference on daily results between QQQ-QLD could give me an idea for test spreads. Want to be notified day email when I make a new post? Subscribers automatically get the link to any spreadsheet included in the post. I've known Cesar for 8 years and he is my first leveraged foremost "go-to" resource for financial markets research, quantified strategy development, and coding. Eventually, I realized that the majority of the models they presented were engineered by Cesar. His work is enlightening, informative and very easy to understand, and that is very refreshing to see in the Quant world The email includes a link to any spreadsheet included in the post. Your Privacy is protected. Home Blog AmiBroker Services Bio Contact Me FAQ Disclaimer. Email Twitter LinkedIn Google Pocket RSS Feed. Related Posts Is mean reversion dead? Is mean reversion dead — reader suggested research. Click Here to Leave a Comment Below. Join my mailing list. Disclaimer The information and analysis on this site is provided for informational purposes only. Nothing strategies should be interpreted as personalized investment advice. Under no circumstances does this information represent a recommendation to buy, sell or hold any security. None of the information etfs this site is guaranteed to be correct, and anything written here should be subject to independent verification. You, and you alone, are solely responsible for any investment decisions you make. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. I may hold positions for trading or clients in the securities or industries mentioned here. There is a very high degree of risk involved in trading securities. Your use of any information on this site is entirely at your own risk. My thoughts and opinions will also change from time to time as I learn and accumulate more knowledge. Testimonials "After working with Cesar my trading performance went from unpredictable and barely profitable to consistently profitable Copyright text by Alvarez Quant Trading. 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Four Leveraged ETF Rules
Four Leveraged ETF Rules
2 thoughts on “Day trading strategies leveraged etfs”
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