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Timing The 3x Bulls, Theory Into Practice

Jun. 08, 2020 7:17 AM ETLABU, SOXL, TQQQ, SPXL10 Comments
Josef Friedman profile picture
Josef Friedman


  • The structural deficiencies of 3x Bull ETFs make them the obvious choice for market-timing strategies.
  • Various technical issues must be resolved when transitioning from analysis to live trading.
  • The algorithm gives advice during live tests; do not put it in control at first (or second).
  • The focus on real-time action should lead to material improvements in the strategy.

The Legend

After my Market Timing article, I decided to start trading the signals. Like the vast majority of people, trading is difficult for me. No doubt, some people can do it quite well.

A trader will have money in a trading account, but a serious person will also have money in longer-term equity investments that are important sources of wealth. That situation can quickly become confusing, as successfully combining the two styles is problematic. In addition, non-trivial accounting issues make it difficult to get a clear, understandable handle on performance.

My previous articles show that Specter/FF5 signal returns beat long-term buy-and-hold returns for almost all US equities. However, the 3x Bulls profit from the signals orders of magnitude better without a lot of extra risk.

I'm neutral on the question of whether these unsound products were approved for use because of regulatory and industry incompetence, nefariousness, or some combination of 50 shades of gray. I'm willing to give the decision makers the benefit of the doubt.

The Trade Plan

Everyone has a plan till they get punched in the mouth. - Mike Tyson

The sages tell us that a trade plan is critical for success. If you were considering trading as a pastime and this didn't occur to you independently, relatively early in the process, maybe you should look for a different pastime.

The algorithm doesn't have a stock selection function and it has no understanding of risk. Those issues can be easily mitigated by trading 100 shares at a time with one or a few relatively decent generic 3x bulls like SPXL or TQQQ. However, it is important for the human partner to give these important strategy elements due consideration.

The algorithm continuously reinvests profits. This is an excellent technique for modeling human performance. As a human gets positive return

This article was written by

Josef Friedman profile picture
Software developer, Excel VBA for quantitative technical analysis, specializing in analyzing groups of equities and ETFs.  Articles document development of market models and game theory.  Chess master.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TQQQ, SOXL, LABU over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (10)

When using this strategy, would you trade once per day at the end of each day based on the current signal? Or would you trade intraday based on the signals as well?
Josef Friedman profile picture

I've been discussing trading these on my website JIFriedman.com.

The analysis is based on holding close to close on a buy. In real life, that can require waiting for 4:15ET for the closing price and the signal to be determined. That increases uncertainty a bit. I don't recommend playing monkey see - monkey do with the algorithm, but the performance numbers are accurate.

Holding Close to Open has been very profitable for quite awhile, especially for 3xs.

I study the numbers from each state (buy and flat) there are about 19 or so that occur. I have been day trading them (if not too distracted by development work) and have been doing well by my standards.

I am currently developing a signal that identifies favorable overall conditions. When that signal is present, it is better to go long by default on any signal. That favorable situation has been in effect since May.

I'm hoping to have an article published on SA on this next week.
Where are the signals published?
Josef Friedman profile picture
My website jifriedman.com.
Millard1234 profile picture
Trading the close is usually not possible in the real world, but trading the next open is very easy. I have been doing that for a while now and my fills on TQQQ are very good. How would your strategies do if you traded the next open instead of the close?
Josef Friedman profile picture
Hi Millard,

It is easy to buy these things in the after market just after the close, usually one can tell which way the wind is blowing before the close to buy or sell then. A buy or sell on close is a valid order type and should work, I've never used one.

I was able to do better than the close in all my buys and sells last week

I looked at next open vs close briefly a few weeks ago. It is a little worse to buy there on a buy signal, on some sell signals it is OK to hold until the open. Those numbers are pretty random.

There is a quant firm I like - Investiquant.com. They specialize in playing opening e-mini gaps and intraday odds. My work is influenced by stuff I saw them doing.
Millard1234 profile picture
Hi Josef,

Thank you for your prompt reply!

I am usually not at my computer at 4 pm to make a trade. I like to place my trades at night to be executed at the next open; that is easy for me.

I do not understand your matrix stuff, but if you say what your total percentage gains are (assuming reinvesting any profits), then I would be able to follow your posts more easily.

I have also been using strategies that find the dates to trade based on Market Internals and/or on the SPX Index and then trading TQQQ on those dates. That works very well!

Thanks for your work on the 3X ETFs.

BTW, is FoxForce your own strategy or was it created by someone else? Is it a strategy that I can get?

Be VERY careful with liquidity issues though. It's not uncommon for "fishing" for the few that are using a Buy At Market order. I've seen prices of 50% over the last selling price...

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