HEDGEFUNDIE's excellent adventure Part II: The next journey

[Forester]

It’s really no surprise at all. Here are the StdDevs over that period:

IWM: 17.4%
SPY: 12.6%

Good ol’ volatility decay in action.

Yup. I’d avoid TQQQ (3x NASDAQ) for the same reason.

Well TQQQ has blown UPRO away this last decade.

In a steady bull, are you surprised?

In one of my leveraged portfoilos, I'm holding TQQQ (and only TQQQ) when the SP500 20 day MA > 200 day MA. Moves into vanilla SP500 when below the 200.

I'm thinking of adding a third (in addition to the Excellent Adventure) that uses the leveraged STTs discussed in EfficientInvestor's thread (via options). My goal is 10% total portfolio allocated to leveraged strategies. I'm also buying some of the PIMCO funds in my "regular" accounts (maybe another 10% or so). This would put me at about 20% in a variety of leveraged plays. Even if they all blow up, not end of the world. And even "blowing up" likely means just trailing the market.

How do you determine bond allocation in your system? Leverage for the Long Run is an interesting paper. To be honest I hadn't considered that moving averages could be more useful at implying future volatility rather than trend direction.

[Hydromod]

I don't think there is one "right" brokerage to do this with. Especially now that many have gone to $0 trading fees. In the recent past a lot of folks had been using M1 or folioinvesting or similar places that allowed for periodic rebalancing with no fee and with the click of a few buttons. The fee aspect as I mentioned is no longer much of a thing so the best broker for each individual depends on too many factors to list.

Thanks, that's a reasonable take.
I had wondered if people had automated this strategy using any of the approaches you mentioned, and which platform was conducive to such scripting or automation. For example, if someone invented a system which rebalances automatically to 55/45 if UPRO/TMF achieves 60/40, or other programmable thresholds. As you say, with $0 commissions the downside is presumably just tracking/verifying the transactions for taxes.

On the market timing aspect I believe OP is still only doing quarterly rebalancing to 55% upro and 45% tmf with no market timing involved.

Do you know if the various backtests show sensitivity to initial conditions at the point of entry, and when exactly the "quarter" boundaries might be? I can see say Jan/Apr/Jul/Oct. differing from some random start date + n*3 months, given that the market is known to be somewhat seasonal. Probably a second-order effect I'd guess.

Thank you for your insights!

I put together a shorter side thread to document some analyses related to the adventure, such as rebalancing frequency and allocation strategies. Search on my name for the thread (I'm away from my computer).

I found that the quarterly rebalancing strategy folks used to conclude that quarterly was best was based on almost the most favorable starting date out of every possible date in the first three months. So there was a noticeable effect of starting day within the quarter.

[locallyoptimal]

I don't think there is one "right" brokerage to do this with. Especially now that many have gone to $0 trading fees. In the recent past a lot of folks had been using M1 or folioinvesting or similar places that allowed for periodic rebalancing with no fee and with the click of a few buttons. The fee aspect as I mentioned is no longer much of a thing so the best broker for each individual depends on too many factors to list.

Thanks, that's a reasonable take.
I had wondered if people had automated this strategy using any of the approaches you mentioned, and which platform was conducive to such scripting or automation. For example, if someone invented a system which rebalances automatically to 55/45 if UPRO/TMF achieves 60/40, or other programmable thresholds. As you say, with $0 commissions the downside is presumably just tracking/verifying the transactions for taxes.

On the market timing aspect I believe OP is still only doing quarterly rebalancing to 55% upro and 45% tmf with no market timing involved.

Do you know if the various backtests show sensitivity to initial conditions at the point of entry, and when exactly the "quarter" boundaries might be? I can see say Jan/Apr/Jul/Oct. differing from some random start date + n*3 months, given that the market is known to be somewhat seasonal. Probably a second-order effect I'd guess.

Thank you for your insights!

I put together a shorter side thread to document some analyses related to the adventure, such as rebalancing frequency and allocation strategies. Search on my name for the thread (I'm away from my computer).

I found that the quarterly rebalancing strategy folks used to conclude that quarterly was best was based on almost the most favorable starting date out of every possible date in the first three months. So there was a noticeable effect of starting day within the quarter.

This appears to be the thread:
viewtopic.php?f=10&t=284955&start=150

Fascinating, much to ponder there. Thanks!

[rascott]

Yup. I’d avoid TQQQ (3x NASDAQ) for the same reason.

Well TQQQ has blown UPRO away this last decade.

In a steady bull, are you surprised?

In one of my leveraged portfoilos, I'm holding TQQQ (and only TQQQ) when the SP500 20 day MA > 200 day MA. Moves into vanilla SP500 when below the 200.

I'm thinking of adding a third (in addition to the Excellent Adventure) that uses the leveraged STTs discussed in EfficientInvestor's thread (via options). My goal is 10% total portfolio allocated to leveraged strategies. I'm also buying some of the PIMCO funds in my "regular" accounts (maybe another 10% or so). This would put me at about 20% in a variety of leveraged plays. Even if they all blow up, not end of the world. And even "blowing up" likely means just trailing the market.

How do you determine bond allocation in your system? Leverage for the Long Run is an interesting paper. To be honest I hadn't considered that moving averages could be more useful at implying future volatility rather than trend direction.

Sometimes the simple is as powerful as the complex. You aren't ever getting wiped out using a SMA (the main risk of a leveraged play) .. to me is: will the 3x in upward markets beat out the flat market where you get whipsawed around?

Historically, the 3x would overcome the whipsaw, and whip the market. TQQQ is up like 17% in the short time I've held it.

I'm using mainly 2 year futures, right now, on the risk parity type portfolio. Still playing with ideas and setups. I like to watch them in operation for a while to get fully comfortable with them.

[keith6014]

has hedgefundie recently posted his recent performance?

I'm only 6 weeks in and down about 3.4%. VTSAX is up over the same window. I never learn...

2 months now. Benchmark(SPY) is up 4.15%. But I am down -2.86%. I am in TQQQ:TMF (45,55).

[rascott]

has hedgefundie recently posted his recent performance?

I'm only 6 weeks in and down about 3.4%. VTSAX is up over the same window. I never learn...

2 months now. Benchmark(SPY) is up 4.15%. But I am down -2.86%. I am in TQQQ:TMF (45,55).

If you started very recently.... it was a bad time to do so.... just really hard for the "everything rally" to continue much longer than it did, with both bonds and stocks rapidly going up together in the first half.

Bonds in particular got way overbought, all the way to inverting the curve. Expected return was negative at that point, for TMF.

Longer term, just a blip.

[MasCowbell]

has hedgefundie recently posted his recent performance?

I'm only 6 weeks in and down about 3.4%. VTSAX is up over the same window. I never learn...

2 months now. Benchmark(SPY) is up 4.15%. But I am down -2.86%. I am in TQQQ:TMF (45,55).

Seems like your benchmark should be QQQ, no?

[Lee_WSP]

has hedgefundie recently posted his recent performance?

I'm only 6 weeks in and down about 3.4%. VTSAX is up over the same window. I never learn...

2 months now. Benchmark(SPY) is up 4.15%. But I am down -2.86%. I am in TQQQ:TMF (45,55).

If you started very recently.... it was a bad time to do so.... just really hard for the "everything rally" to continue much longer than it did, with both bonds and stocks rapidly going up together in the first half.

Bonds in particular got way overbought, all the way to inverting the curve. Expected return was negative at that point, for TMF.

Longer term, just a blip.

TMF is also extremely spiky (hence the greater vol decay). If it repeats the past, it'll shoot back up soon enough or keep plumbing the depths.

[rascott]

has hedgefundie recently posted his recent performance?

I'm only 6 weeks in and down about 3.4%. VTSAX is up over the same window. I never learn...

2 months now. Benchmark(SPY) is up 4.15%. But I am down -2.86%. I am in TQQQ:TMF (45,55).

If you started very recently.... it was a bad time to do so.... just really hard for the "everything rally" to continue much longer than it did, with both bonds and stocks rapidly going up together in the first half.

Bonds in particular got way overbought, all the way to inverting the curve. Expected return was negative at that point, for TMF.

Longer term, just a blip.

TMF is also extremely spiky (hence the greater vol decay). If it repeats the past, it'll shoot back up soon enough or keep plumbing the depths.

Lol.... what 3x ETF isn't spiky?

Equities have been relatively calm lately.... wait until you see UPRO in a volatile market. TMF will seem mild.

[Lee_WSP]

I'm only 6 weeks in and down about 3.4%. VTSAX is up over the same window. I never learn...

2 months now. Benchmark(SPY) is up 4.15%. But I am down -2.86%. I am in TQQQ:TMF (45,55).

If you started very recently.... it was a bad time to do so.... just really hard for the "everything rally" to continue much longer than it did, with both bonds and stocks rapidly going up together in the first half.

Bonds in particular got way overbought, all the way to inverting the curve. Expected return was negative at that point, for TMF.

Longer term, just a blip.

TMF is also extremely spiky (hence the greater vol decay). If it repeats the past, it'll shoot back up soon enough or keep plumbing the depths.

Lol.... what 3x ETF isn't spiky?

Equities have been relatively calm lately.... wait until you see UPRO in a volatile market. TMF will seem mild.

Upro actually has less spikes, but more range.

[keith6014]

has hedgefundie recently posted his recent performance?

I'm only 6 weeks in and down about 3.4%. VTSAX is up over the same window. I never learn...

2 months now. Benchmark(SPY) is up 4.15%. But I am down -2.86%. I am in TQQQ:TMF (45,55).

If you started very recently.... it was a bad time to do so.... just really hard for the "everything rally" to continue much longer than it did, with both bonds and stocks rapidly going up together in the first half.

Bonds in particular got way overbought, all the way to inverting the curve. Expected return was negative at that point, for TMF.

Longer term, just a blip.

Good to hear!

[keith6014]

has hedgefundie recently posted his recent performance?

I'm only 6 weeks in and down about 3.4%. VTSAX is up over the same window. I never learn...

2 months now. Benchmark(SPY) is up 4.15%. But I am down -2.86%. I am in TQQQ:TMF (45,55).

Seems like your benchmark should be QQQ, no?

Thats a good point. I always use SPY as my personal benchmark. Even when I buy QQQ I compare it to SPY. I fear I would be down much more if I used QQQ

[parval]

Thank you so much for all the insight, has there been discussion on how realistic using moving averages to augment this strategy would be?

Link to Leverage for the Long Run paper that proposes higher returns with less volatility (200-day LRS):

https://papers.ssrn.com/sol3/papers.cfm ... id=2741701

[Forester]

Thank you so much for all the insight, has there been discussion on how realistic using moving averages to augment this strategy would be?

Link to Leverage for the Long Run paper that proposes higher returns with less volatility (200-day LRS):

https://papers.ssrn.com/sol3/papers.cfm ... id=2741701

I think 3X ETFs are too volatile and any backtest which includes the (arguably aberrant) 2000-2009 period, will flatter a market timing strategy.

[parval]

Thank you so much for all the insight, has there been discussion on how realistic using moving averages to augment this strategy would be?

Link to Leverage for the Long Run paper that proposes higher returns with less volatility (200-day LRS):

https://papers.ssrn.com/sol3/papers.cfm ... id=2741701

I think 3X ETFs are too volatile and any backtest which includes the (arguably aberrant) 2000-2009 period, will flatter a market timing strategy.

What was the aberrant part of 2000-2009? My understanding is the 2 biggest macro risks to this strategy are rising interest rates and volatility. There's been lengthy discussion on how inflation is controlled and ultimately we're unlikely to repeat the high interest rate environment during the great stagflation.

However, as the paper shows, 3x ETFs are quite susceptible to whipsaw and one potential hedge is using MA. There seem to be great correlation between volatility and whether the market is above/below 200-day MA. Also w/ 200-day MA as the trigger the paper says it averages 5 times a year, which would be similar to quarterly rebalance, perhaps not as arbitrary.

I think we're likely to see more volatility compared to historical, due to globalization and increased correlation across asset classes, wdyt?

[Forester]

Thank you so much for all the insight, has there been discussion on how realistic using moving averages to augment this strategy would be?

Link to Leverage for the Long Run paper that proposes higher returns with less volatility (200-day LRS):

https://papers.ssrn.com/sol3/papers.cfm ... id=2741701

I think 3X ETFs are too volatile and any backtest which includes the (arguably aberrant) 2000-2009 period, will flatter a market timing strategy.

What was the aberrant part of 2000-2009? My understanding is the 2 biggest macro risks to this strategy are rising interest rates and volatility. There's been lengthy discussion on how inflation is controlled and ultimately we're unlikely to repeat the high interest rate environment during the great stagflation.

However, as the paper shows, 3x ETFs are quite susceptible to whipsaw and one potential hedge is using MA. There seem to be great correlation between volatility and whether the market is above/below 200-day MA. Also w/ 200-day MA as the trigger the paper says it averages 5 times a year, which would be similar to quarterly rebalance, perhaps not as arbitrary.

I think we're likely to see more volatility compared to historical, due to globalization and increased correlation across asset classes, wdyt?

Simple timing systems such as GEM which use the S&P 500 have tried the patience of many in the 2010s with ugly whipsaws, I can only imagine it would have been worse with UPRO https://www.portfoliovisualizer.com/tes ... 0&total1=0

Two 50% sell offs, two nice deep V-shapes in a decade, are flattering to naive market timing strategies. Even a 40-year backtest will be dominated by that decade, I'm just saying be cautious.

[manlymatt83]

So what are the reasons for NOT doing something like this? I don’t see many people playing devils advocate.

[rascott]

Thank you so much for all the insight, has there been discussion on how realistic using moving averages to augment this strategy would be?

Link to Leverage for the Long Run paper that proposes higher returns with less volatility (200-day LRS):

https://papers.ssrn.com/sol3/papers.cfm ... id=2741701

I think 3X ETFs are too volatile and any backtest which includes the (arguably aberrant) 2000-2009 period, will flatter a market timing strategy.

That strategy does not use the SMA of the LETF. It uses the SP500 SMA as the signal asset to be in/out of the 3x ETF.

Timing methods such as SMA won't beat the market using non-levered positions..... but they are a form of insurance to keep you out of bad bear markets.

I personally believe the 3x in a bull will more than compensate for the whipsaws, e.t.c.... you will face in a flat market.

I'm running this strategy using TQQQ. Along with running the excellent adventure risk parity strategy (the same amounts in both.) I personally believe this strategy will hold up better going forward than risk parity, but I don't know for sure, so I'm going both ways.


My setup is more along the lines of this. I am not going to cash at the signal. Just taking the leverage off, and go back to vanilla SP500.

https://www.portfoliovisualizer.com/tes ... total1=100

[MotoTrojan]

So what are the reasons for NOT doing something like this? I don’t see many people playing devils advocate.

You haven't spent enough time reading the 1st thread.

There are some situations where UPRO will perform poorly due to volatility decay (flat/low returns with lots of volatility) but the main reason to avoid it is the risk of rising interest rates, which would crush TMF while also making UPRO more expensive.

[ltdshred]

Has anyone tried combining this strategy with TQQQ? I've been thinking about doing a 45-55 TQQQ-TMF combo and when I backtested in PV, it dominated the 55-45 UPRO-TMF portfolio.

Right now my allocation is 45-55 UPRO-TMF and I have been in this strategy for 3 months.

[MotoTrojan]

Has anyone tried combining this strategy with TQQQ? I've been thinking about doing a 45-55 TQQQ-TMF combo and when I backtested in PV, it dominated the 55-45 UPRO-TMF portfolio.

Right now my allocation is 45-55 UPRO-TMF and I have been in this strategy for 3 months.

Did you backtest prior to inception with simulated data? If not, I’d say neither the TQQQ or UPRO portfolios are for you.

[rascott]

Has anyone tried combining this strategy with TQQQ? I've been thinking about doing a 45-55 TQQQ-TMF combo and when I backtested in PV, it dominated the 55-45 UPRO-TMF portfolio.

Right now my allocation is 45-55 UPRO-TMF and I have been in this strategy for 3 months.

TQQQ is more volatile and could expose you to much higher risk in a bear market. That said..... the "Qs" have outperformed the SP500 in more periods than not, going back to its inception. It's performance since roughly 2003 (post bubble, wash-out) has been obviously, very impressive.

It's just not one I'd want to hold on the wrong side of the 200 day MA. So many people were scarred by the QQQs in 2001-03, that wound still lives with people.

I'm happy to hold it as I do, alone, mentioned in above post.

[MotoTrojan]

Has anyone tried combining this strategy with TQQQ? I've been thinking about doing a 45-55 TQQQ-TMF combo and when I backtested in PV, it dominated the 55-45 UPRO-TMF portfolio.

Right now my allocation is 45-55 UPRO-TMF and I have been in this strategy for 3 months.

TQQQ is more volatile and could expose you to much higher risk in a bear market. That said..... the Nasdaq has outperformed the SP500 in more periods than not, going back to its inception. It's performance since roughly 2003 (post bubble, wash-out) so has been obviously, very impressive.

It's just not one I'd want to hold on the wrong side of the 200 day MA. So many people were scarred by the QQQs in 2001-03, that wound still lives with people.

Even if you know with certainty that the Nasdaq will continue to outperform the S&P500, that does not mean TQQQ will outperform UPRO.

[HEDGEFUNDIE]

Has anyone tried combining this strategy with TQQQ? I've been thinking about doing a 45-55 TQQQ-TMF combo and when I backtested in PV, it dominated the 55-45 UPRO-TMF portfolio.

Right now my allocation is 45-55 UPRO-TMF and I have been in this strategy for 3 months.

TQQQ is more volatile and could expose you to much higher risk in a bear market. That said..... the Nasdaq has outperformed the SP500 in more periods than not, going back to its inception. It's performance since roughly 2003 (post bubble, wash-out) so has been obviously, very impressive.

It's just not one I'd want to hold on the wrong side of the 200 day MA. So many people were scarred by the QQQs in 2001-03, that wound still lives with people.

Even if you know with certainty that the Nasdaq will continue to outperform the S&P500, that does not mean TQQQ will outperform UPRO.

Bingo

[rascott]

Has anyone tried combining this strategy with TQQQ? I've been thinking about doing a 45-55 TQQQ-TMF combo and when I backtested in PV, it dominated the 55-45 UPRO-TMF portfolio.

Right now my allocation is 45-55 UPRO-TMF and I have been in this strategy for 3 months.

TQQQ is more volatile and could expose you to much higher risk in a bear market. That said..... the Nasdaq has outperformed the SP500 in more periods than not, going back to its inception. It's performance since roughly 2003 (post bubble, wash-out) so has been obviously, very impressive.

It's just not one I'd want to hold on the wrong side of the 200 day MA. So many people were scarred by the QQQs in 2001-03, that wound still lives with people.

Even if you know with certainty that the Nasdaq will continue to outperform the S&P500, that does not mean TQQQ will outperform UPRO.

We don't know anything about the future, only the past. I'm here messing with this to go for the big play. TQQQ is part of that, for me.
As is leveraged SP500 and Treasury futures.


My other 90% of money is in boring old index funds and boring rental houses.

[Hydromod]

Has anyone tried combining this strategy with TQQQ? I've been thinking about doing a 45-55 TQQQ-TMF combo and when I backtested in PV, it dominated the 55-45 UPRO-TMF portfolio.

Right now my allocation is 45-55 UPRO-TMF and I have been in this strategy for 3 months.

TQQQ is more volatile and could expose you to much higher risk in a bear market. That said..... the Nasdaq has outperformed the SP500 in more periods than not, going back to its inception. It's performance since roughly 2003 (post bubble, wash-out) so has been obviously, very impressive.

It's just not one I'd want to hold on the wrong side of the 200 day MA. So many people were scarred by the QQQs in 2001-03, that wound still lives with people.

Even if you know with certainty that the Nasdaq will continue to outperform the S&P500, that does not mean TQQQ will outperform UPRO.

We don't know anything about the future, only the past. I'm here messing with this to go for the big play. TQQQ is part of that, for me.
As is leveraged SP500 and Treasury futures.


My other 90% of money is in boring old index funds and boring rental houses.

I'm going all adaptive-risk-budget risk parity with UPRO, TQQQ, and TMF.

Conceptually I have a UPRO/TMF portfolio and a TQQQ/TMF portfolio side-by-side in the same account. The weights change according to the risk budget and asset volatilities (60-day lookback, downward-only variances).

Right now I have 1/3 of the risk allocated to the UPRO/TMF pair and 2/3 to the TQQQ/TMF pair. The overall risk budget is currently set to 70% equity/30% TMF based on macroeconomic conditions. I'm using a band scheme for rebalancing. The weights are calculated in a Google Sheets workbook.

I'm setting the fraction of the risk budget allocated to equities using the unemployment rate (UNRATE) as the indicator for macroeconomic conditions. Equity risk budget is capped at 70% but allowed to drop to zero while the moving average of UNRATE is accelerating up. I'm limiting the change in risk budget for equities to no more than 25%/month. I'm still figuring out details, but I expect I'll have at least a few months to fine tune my strategy given the current behavior of UNRATE.

The other 95% of my portfolio is boring indexing.

[rascott]

I'm going all adaptive-risk-budget risk parity with UPRO, TQQQ, and TMF.

Conceptually I have a UPRO/TMF portfolio and a TQQQ/TMF portfolio side-by-side in the same account. The weights change according to the risk budget and asset volatilities (60-day lookback, downward-only variances).

Right now I have 1/3 of the risk allocated to the UPRO/TMF pair and 2/3 to the TQQQ/TMF pair. The overall risk budget is currently set to 70% equity/30% TMF based on macroeconomic conditions. I'm using a band scheme for rebalancing. The weights are calculated in a Google Sheets workbook.

I'm setting the fraction of the risk budget allocated to equities using the unemployment rate (UNRATE) as the indicator for macroeconomic conditions. Equity risk budget is capped at 70% but allowed to drop to zero while the moving average of UNRATE is accelerating up. I'm limiting the change in risk budget for equities to no more than 25%/month. I'm still figuring out details, but I expect I'll have at least a few months to fine tune my strategy given the current behavior of UNRATE.

The other 95% of my portfolio is boring indexing.

Keep us updated. I'll be honest, while I've read through your other thread as you've been posting, most of it I can't follow. But appreciate the level of detail you've gone into.

[butricksaid]

What was the aberrant part of 2000-2009? My understanding is the 2 biggest macro risks to this strategy are rising interest rates and volatility. There's been lengthy discussion on how inflation is controlled and ultimately we're unlikely to repeat the high interest rate environment during the great stagflation.

However, as the paper shows, 3x ETFs are quite susceptible to whipsaw and one potential hedge is using MA. There seem to be great correlation between volatility and whether the market is above/below 200-day MA. Also w/ 200-day MA as the trigger the paper says it averages 5 times a year, which would be similar to quarterly rebalance, perhaps not as arbitrary.

I think we're likely to see more volatility compared to historical, due to globalization and increased correlation across asset classes, wdyt?

What tool are folks using to track 200-day SMA?
What tool are folks using to use 60 day volatility lookback?

I tried TradingView and I'm convinced theirs is broken because the points on the chart don't match up with the value in the toolbox. Tracking this table doesn't appeal to me as much as a line graph either. https://www.barchart.com/stocks/quotes/ ... l-analysis

[parval]

I just use yahoo finance...is that bad?

[MotoTrojan]

What was the aberrant part of 2000-2009? My understanding is the 2 biggest macro risks to this strategy are rising interest rates and volatility. There's been lengthy discussion on how inflation is controlled and ultimately we're unlikely to repeat the high interest rate environment during the great stagflation.

However, as the paper shows, 3x ETFs are quite susceptible to whipsaw and one potential hedge is using MA. There seem to be great correlation between volatility and whether the market is above/below 200-day MA. Also w/ 200-day MA as the trigger the paper says it averages 5 times a year, which would be similar to quarterly rebalance, perhaps not as arbitrary.

I think we're likely to see more volatility compared to historical, due to globalization and increased correlation across asset classes, wdyt?

What tool are folks using to track 200-day SMA?
What tool are folks using to use 60 day volatility lookback?

I tried TradingView and I'm convinced theirs is broken because the points on the chart don't match up with the value in the toolbox. Tracking this table doesn't appeal to me as much as a line graph either. https://www.barchart.com/stocks/quotes/ ... l-analysis

Portfolio Visualizer is useful for the look-back volatility. I am doing boring quarterly rebalance with a fixed allocation though.

[Mountain Man]

Not sure how long it will take, but I'm excited for Part 3 of this thread where International equities start outperforming the US and everyone starts adding EURL or EDC to their Lev.-ETF portfolio.

Cheers!

[MotoTrojan]

Not sure how long it will take, but I'm excited for Part 3 of this thread where International equities start outperforming the US and everyone starts adding EURL or EDC to their Lev.-ETF portfolio.

Cheers!

I don’t know about those but DZK, the developed market 3x fund from Direxion, has done terribly with a nearly 3% drag on top of the 1% ER, borrowing costs, etc. I looked at this but won’t go near it now.

[willthrill81]

What was the aberrant part of 2000-2009? My understanding is the 2 biggest macro risks to this strategy are rising interest rates and volatility. There's been lengthy discussion on how inflation is controlled and ultimately we're unlikely to repeat the high interest rate environment during the great stagflation.

However, as the paper shows, 3x ETFs are quite susceptible to whipsaw and one potential hedge is using MA. There seem to be great correlation between volatility and whether the market is above/below 200-day MA. Also w/ 200-day MA as the trigger the paper says it averages 5 times a year, which would be similar to quarterly rebalance, perhaps not as arbitrary.

I think we're likely to see more volatility compared to historical, due to globalization and increased correlation across asset classes, wdyt?

What tool are folks using to track 200-day SMA?
What tool are folks using to use 60 day volatility lookback?

I tried TradingView and I'm convinced theirs is broken because the points on the chart don't match up with the value in the toolbox. Tracking this table doesn't appeal to me as much as a line graph either. https://www.barchart.com/stocks/quotes/ ... l-analysis

Portfolio Visualizer is useful for the look-back volatility. I am doing boring quarterly rebalance with a fixed allocation though.

I implemented a 25% target volatility approach with a 1 month lookback and 80% cap on UPRO back in early July. The return so far has been 8.08%. It's volatile as heck, but I'm content with the results so far. For Nov., I'm at 68% UPRO / 32% TMF.

[guyinlaw]

Please share paper(s) that discuss different market timing approaches.

[rascott]

Please share paper(s) that discuss different market timing approaches.

The only paper I've read is the one that's linked above (Leverage for the Long Run) regarding the volatility differences found above/ below the 200 day SMA.

[MotoTrojan]

Please share paper(s) that discuss different market timing approaches.

Google volatility managed portfolios for that side of things.

[rascott]

What was the aberrant part of 2000-2009? My understanding is the 2 biggest macro risks to this strategy are rising interest rates and volatility. There's been lengthy discussion on how inflation is controlled and ultimately we're unlikely to repeat the high interest rate environment during the great stagflation.

However, as the paper shows, 3x ETFs are quite susceptible to whipsaw and one potential hedge is using MA. There seem to be great correlation between volatility and whether the market is above/below 200-day MA. Also w/ 200-day MA as the trigger the paper says it averages 5 times a year, which would be similar to quarterly rebalance, perhaps not as arbitrary.

I think we're likely to see more volatility compared to historical, due to globalization and increased correlation across asset classes, wdyt?

What tool are folks using to track 200-day SMA?
What tool are folks using to use 60 day volatility lookback?

I tried TradingView and I'm convinced theirs is broken because the points on the chart don't match up with the value in the toolbox. Tracking this table doesn't appeal to me as much as a line graph either. https://www.barchart.com/stocks/quotes/ ... l-analysis

Portfolio Visualizer is useful for the look-back volatility. I am doing boring quarterly rebalance with a fixed allocation though.

I implemented a 25% target volatility approach with a 1 month lookback and 80% cap on UPRO back in early July. The return so far has been 8.08%. It's volatile as heck, but I'm content with the results so far. For Nov., I'm at 68% UPRO / 32% TMF.

How did you come up with 80% cap?. I'd think with 25% target vol, it would have you in near 100% UPRO fairly often.

[MotoTrojan]

What was the aberrant part of 2000-2009? My understanding is the 2 biggest macro risks to this strategy are rising interest rates and volatility. There's been lengthy discussion on how inflation is controlled and ultimately we're unlikely to repeat the high interest rate environment during the great stagflation.

However, as the paper shows, 3x ETFs are quite susceptible to whipsaw and one potential hedge is using MA. There seem to be great correlation between volatility and whether the market is above/below 200-day MA. Also w/ 200-day MA as the trigger the paper says it averages 5 times a year, which would be similar to quarterly rebalance, perhaps not as arbitrary.

I think we're likely to see more volatility compared to historical, due to globalization and increased correlation across asset classes, wdyt?

What tool are folks using to track 200-day SMA?
What tool are folks using to use 60 day volatility lookback?

I tried TradingView and I'm convinced theirs is broken because the points on the chart don't match up with the value in the toolbox. Tracking this table doesn't appeal to me as much as a line graph either. https://www.barchart.com/stocks/quotes/ ... l-analysis

Portfolio Visualizer is useful for the look-back volatility. I am doing boring quarterly rebalance with a fixed allocation though.

I implemented a 25% target volatility approach with a 1 month lookback and 80% cap on UPRO back in early July. The return so far has been 8.08%. It's volatile as heck, but I'm content with the results so far. For Nov., I'm at 68% UPRO / 32% TMF.

How did you come up with 80% cap?. I'd think with 25% target vol, it would have you in near 100% UPRO fairly often.

Sometimes emotions are involved and you have to do things like this. I also liked the cap of 80% but I preferred the 18% volatility realm when I looked at this strategy so the cap wasn’t needed as often.

[willthrill81]

What was the aberrant part of 2000-2009? My understanding is the 2 biggest macro risks to this strategy are rising interest rates and volatility. There's been lengthy discussion on how inflation is controlled and ultimately we're unlikely to repeat the high interest rate environment during the great stagflation.

However, as the paper shows, 3x ETFs are quite susceptible to whipsaw and one potential hedge is using MA. There seem to be great correlation between volatility and whether the market is above/below 200-day MA. Also w/ 200-day MA as the trigger the paper says it averages 5 times a year, which would be similar to quarterly rebalance, perhaps not as arbitrary.

I think we're likely to see more volatility compared to historical, due to globalization and increased correlation across asset classes, wdyt?

What tool are folks using to track 200-day SMA?
What tool are folks using to use 60 day volatility lookback?

I tried TradingView and I'm convinced theirs is broken because the points on the chart don't match up with the value in the toolbox. Tracking this table doesn't appeal to me as much as a line graph either. https://www.barchart.com/stocks/quotes/ ... l-analysis

Portfolio Visualizer is useful for the look-back volatility. I am doing boring quarterly rebalance with a fixed allocation though.

I implemented a 25% target volatility approach with a 1 month lookback and 80% cap on UPRO back in early July. The return so far has been 8.08%. It's volatile as heck, but I'm content with the results so far. For Nov., I'm at 68% UPRO / 32% TMF.

How did you come up with 80% cap?. I'd think with 25% target vol, it would have you in near 100% UPRO fairly often.

An 80% cap keeps me at least somewhat exposed to the potential diversification benefit of holding TMF.

[Forester]

Vanguard FTSE 100 VUKE.L
Open 32.17 Close 32.34 GBP (+0.83%)

WisdomTree 3X FTSE 100 3UKL.L
Open 22,480 Close 22,632 GBP (+0.79%)

The 3X had done fine this week but I don't get this. I bought a little just to monitor it.

[MotoTrojan]

Vanguard FTSE 100 VUKE.L
Open 32.17 Close 32.34 GBP (+0.83%)

WisdomTree 3X FTSE 100 3UKL.L
Open 22,480 Close 22,632 GBP (+0.79%)

The 3X had done fine this week but I don't get this. I bought a little just to monitor it.

These are weekly returns? Strange indeed.

[Kbg]

Has anyone tried combining this strategy with TQQQ? I've been thinking about doing a 45-55 TQQQ-TMF combo and when I backtested in PV, it dominated the 55-45 UPRO-TMF portfolio.

Right now my allocation is 45-55 UPRO-TMF and I have been in this strategy for 3 months.

TQQQ is more volatile and could expose you to much higher risk in a bear market. That said..... the Nasdaq has outperformed the SP500 in more periods than not, going back to its inception. It's performance since roughly 2003 (post bubble, wash-out) so has been obviously, very impressive.

It's just not one I'd want to hold on the wrong side of the 200 day MA. So many people were scarred by the QQQs in 2001-03, that wound still lives with people.

Even if you know with certainty that the Nasdaq will continue to outperform the S&P500, that does not mean TQQQ will outperform UPRO.

Bingo

Since the Nasdaq 100 has existed it has always had better overall bull market performance than the S&P 500, without exception. If we except the late 70s high inflation ain't going to happen again, then I see no reason to accept the dot.com bubble (essentially mass adoption of a new technology) wasn't a one off either. We can quibble year to year between NDX and SPX for sure. However, historically NDX has snapped back much harder than the SPX coming out of a draw down. There has been a ton of time spent examining bonds, researching other elements of leveraged strategies and associated characteristics is very fruitful time spent...especially when amping up to 3x. Understanding the compounding characteristics and correlations between assets is critical. Finally, it's worth time understanding the mechanics of stock indexes themselves when choosing.

Doing a risk parity analysis of QLD, SSO and TLT is instructive in this regard. With these ETFs you can start in 2007. The Great Recession is a pretty good stress case. The only one better is the Great Depression.

[MotoTrojan]

Has anyone tried combining this strategy with TQQQ? I've been thinking about doing a 45-55 TQQQ-TMF combo and when I backtested in PV, it dominated the 55-45 UPRO-TMF portfolio.

Right now my allocation is 45-55 UPRO-TMF and I have been in this strategy for 3 months.

TQQQ is more volatile and could expose you to much higher risk in a bear market. That said..... the Nasdaq has outperformed the SP500 in more periods than not, going back to its inception. It's performance since roughly 2003 (post bubble, wash-out) so has been obviously, very impressive.

It's just not one I'd want to hold on the wrong side of the 200 day MA. So many people were scarred by the QQQs in 2001-03, that wound still lives with people.

Even if you know with certainty that the Nasdaq will continue to outperform the S&P500, that does not mean TQQQ will outperform UPRO.

Bingo

Since the Nasdaq 100 has existed it has always had better overall bull market performance than the S&P 500, without exception. If we except the late 70s high inflation ain't going to happen again, then I see no reason to accept the dot.com bubble (essentially mass adoption of a new technology) wasn't a one off either. We can quibble year to year between NDX and SPX for sure. However, historically NDX has snapped back much harder than the SPX coming out of a draw down. There has been a ton of time spent examining bonds, researching other elements of leveraged strategies and associated characteristics is very fruitful time spent...especially when amping up to 3x. Understanding the compounding characteristics and correlations between assets is critical. Finally, it's worth time understanding the mechanics of stock indexes themselves when choosing.

Doing a risk parity analysis of QLD, SSO and TLT is instructive in this regard. With these ETFs you can start in 2007. The Great Recession is a pretty good stress case. The only one better is the Great Depression.

Where in here are you comparing the volatility and volatility-decay of these options? Again, unleveraged performance is not the only determination of which 3x LETF would do better.

[HEDGEFUNDIE]

Has anyone tried combining this strategy with TQQQ? I've been thinking about doing a 45-55 TQQQ-TMF combo and when I backtested in PV, it dominated the 55-45 UPRO-TMF portfolio.

Right now my allocation is 45-55 UPRO-TMF and I have been in this strategy for 3 months.

TQQQ is more volatile and could expose you to much higher risk in a bear market. That said..... the Nasdaq has outperformed the SP500 in more periods than not, going back to its inception. It's performance since roughly 2003 (post bubble, wash-out) so has been obviously, very impressive.

It's just not one I'd want to hold on the wrong side of the 200 day MA. So many people were scarred by the QQQs in 2001-03, that wound still lives with people.

Even if you know with certainty that the Nasdaq will continue to outperform the S&P500, that does not mean TQQQ will outperform UPRO.

Bingo

Since the Nasdaq 100 has existed it has always had better overall bull market performance than the S&P 500, without exception. If we except the late 70s high inflation ain't going to happen again, then I see no reason to accept the dot.com bubble (essentially mass adoption of a new technology) wasn't a one off either. We can quibble year to year between NDX and SPX for sure. However, historically NDX has snapped back much harder than the SPX coming out of a draw down. There has been a ton of time spent examining bonds, researching other elements of leveraged strategies and associated characteristics is very fruitful time spent...especially when amping up to 3x. Understanding the compounding characteristics and correlations between assets is critical. Finally, it's worth time understanding the mechanics of stock indexes themselves when choosing.

Doing a risk parity analysis of QLD, SSO and TLT is instructive in this regard. With these ETFs you can start in 2007. The Great Recession is a pretty good stress case. The only one better is the Great Depression.

Using TQQQ instead of UPRO is not a new idea. Just search in the original thread and you will find over 100 mentions of it.

I don’t use TQQQ because:

1. S&P 500 is much more diversified than the Nasdaq 100.
2. 55/45 UPRO/TMF has returned 33% CAGR since inception. That is plenty of performance for me. Using TQQQ bumps up the CAGR to 40%, but at the cost of higher volatility. In fact the two Sharpe Ratios are identical. When my M1 account gets into the millions, I will be able to stay the course better with UPRO.
3. The volatility on QQQ is 24% compared to 14% for the S&P. Higher volatility = higher volatility drag

[mrspock]

Time for my quarterly check-in: I'm up 49% since Feb 12th (I had to triple check the math here, but it's correct), doing the 50/50 version of this w/ quarterly rebalance. I pivoted to the 50/50 from the original 40/60 (UPRO/TMF) version of this on Aug 13th.

Not a bad start to this adventure. An even better adventure now that Schwab doesn't charge for ETF trades now.

[HEDGEFUNDIE]

Time for my quarterly check-in: I'm up 49% since Feb 12th (I had to triple check the math here, but it's correct), doing the 50/50 version of this w/ quarterly rebalance. I pivoted to the 50/50 from the original 40/60 (UPRO/TMF) version of this on Aug 13th.

Not a bad start to this adventure. An even better adventure now that Schwab doesn't change for ETF trades now.

Congratulations!

I just rebalanced as well. I am up 54%.

[get_g0ing]

Time for my quarterly check-in: I'm up 49% since Feb 12th (I had to triple check the math here, but it's correct), doing the 50/50 version of this w/ quarterly rebalance.

I just rebalanced as well. I am up 54%.

Thanks for checking in guys. Congratulations

[Hydromod]

Are you going to keep a quarterly record in one spot, like you were in the original thread?

[MotoTrojan]

Time for my quarterly check-in: I'm up 49% since Feb 12th (I had to triple check the math here, but it's correct), doing the 50/50 version of this w/ quarterly rebalance. I pivoted to the 50/50 from the original 40/60 (UPRO/TMF) version of this on Aug 13th.

Not a bad start to this adventure. An even better adventure now that Schwab doesn't change for ETF trades now.

Congratulations!

I just rebalanced as well. I am up 54%.

Nice work. I’m at 41% since 2/28, with some contributions along the way. XIRR is 70.6% compared to S&P500’s 16.3% so likely similar to you both.

Last two months have been with EDV, but rates haven’t done much in that time anyways. I feel much more comfortable here though long term.

Real question will be: do I start contributing more to this come January .

[Alaric]

I am up 50.3% since my 2/27 start. I began at the original 40/60 and reset to 55/45 on 10/1. That was the only rebalance.