Swing trading is a strategy for trading in financial markets that looks to exploit short- to medium-term price movements. In this sense, a ‘swing’ can represent a day or several days, a week, or even several weeks. It’s a dynamic approach to trading that seeks an advantage in the ebb and flow of a market, the very changes in price that panic the average, short-sighted investor. Asset-holders prefer to embrace these changes, and are willing to ride out the wobbles, in the hope of making some money as the price ‘swing’ comes back in their favour – hence the name. The advantage of swing trading, compared with fast-paced trading styles, is that the investor becomes more removed from the frantic, twitchy-fingered world of day trading, where positions are bought and sold repeatedly in a matter of seconds. The swing trader is under less pressure to decide a course of action immediately and – theoretically at least – has the freedom to leave profits in the market for up to a month.
TQQQ, also known by its full name, the ProShares UltraPro QQQ, is a triple-leveraged exchange-traded fund designed to invest in the Nasdaq-100 Index, a market-cap-weighted index which tracks the performance of the 100 largest tech companies in the Nasdaq Stock Market. For the swing trader who hopes to maximise the returns on a series of short-term trades, a leveraged ETF like TQQQ offers the potential for magnified gains. But amplified returns come with amplified risk. Keeping up with markets and practising smart risk management when working with TQQQ is essential.
Swing trading methods combined with TQQQ’s volatility permits those who are sold on the Nasdaq-100 stock space to capture opportunities.
TQQQ, also known as the ProShares UltraPro QQQ, is an exchange-traded fund (ETF) that offers triple leverage and is designed to deliver three times the daily return of the Nasdaq-100 Index on a daily basis (eg: if the Nasdaq-100 goes up 1%, TQQQ should go up around 3%). This 3x leveraged structure is a big plus in bull markets, which is why TQQQ often becomes a popular choice for swing traders who want to capture those short-term spikes in price.
But the same goes for losses – without adequate risk management, leveraged ETFs can be also be subject to magnified loss. Leveraged ETFs such as TQQQ are highly volatile funds that were developed with more experienced traders in mind. Swing trading with such instruments (be it TQQQ or any other ETF or fund) demands an equally savvy trader, with a healthy appreciation for the market cycle, the use of technical indicators, trend momentum, and sufficient stop-loss limits to protect profits and prevent unacceptable losses.
And so in the end TQQQ gives traders crazy opportunities for quick profits, but it requires serious discipline and active management.
Stay in the trade too long If you’re an unskilled, average reader of Investopedia tiptoeing into TQQQ for the first time, here’s how to swing-trade this triple-leveraged ETF designed to track the Nasdaq-100. First, measure the distance between two points on a chart, ideally from the same time frame on the same day, to see if regular cycles are present within the data. Then, spot a trend. Look for a rally, followed by a sell-the-news pullback, followed by a new high, and then a round of weekend profit-taking. Bonus points if you can bisect your current screen into three symmetrical charts containing past years of price action. Next, employ any number of technical indicators to find an EQ, entry or exit. These variables might be handy: MACD crossover, moving-average crossover, triple crossover, head and shoulders, double-top reversal, cup with handle, shooting star, evening star, morning star, bear flag or bull flag. Knowing when to buy low and sell high when price swings are a matter of 1/32nd of a share is an intuitive affair. With reams of charts depicting multiple test periods from the past five years winking at you from various pages, calculating the risk-reward ratio against your bull/bear targets should be simply a matter of intuition. Finally, stick with your winners and cut your losses.
Risk management is perhaps the most important: one way to protect against big downswings is to use stop-loss orders, which are especially important with leveraged products such as TQQQ, where a 3 per cent daily move is possible. Having a trading plan that includes profit targets and exit-loss levels also helps to keep traders disciplined, so they’re less prone to emotional mistakes.
This could be supplemented with general news coverage of the macroeconomy and the tech sector, to get a sense of what’s going on and when the market is likely to turn. And of course, this brings us to the final, but perhaps most crucial factor of success in trading TQQQ: flexibility. Market conditions can shift dramatically, so no trading strategy is set in stone. In the most successful trades, traders then have to navigate these shifts in the largest vortexes while keeping an eye on broader market sentiment in order to profit from choppier conditions.
Risk management is a key ingredient for successful swing trading with leveraged ETFs like TQQQ. Because of its volatility, it is certainly necessary to trade with rules. A crucial technique is setting stop-loss orders – if the asset price falls to your specified target, the order automatically sells, caps your loss on any particular trade, and puts you back in cash.
Secondly, position sizing is important: traders must never place a sizable percentage of their available capital at risk on any one trade, or else they risk going broke, especially with several successive losses. Trades across different sectors can further reduce risk, because a losing sector can be offset by a winning one.
Furthermore, it is useful to know what is going on in the market and within the macro economy so that traders can react to market forces and adjust their strategy. The risk management tools discussed herein provide a way for TQQQ swing traders to use leveraging while positioning themselves to reap in profits.
TQQQ is the triple-leveraged exchange-traded fund (ETF) that follows the Nasdaq-100 USD Index. Given its triple-leveraged nature, traders need to look at both the technical aspects of market trends and indicators around the price action, and the underlying fundamentals. Most technical-analysis traders start by looking at the price and how the market is acting around specific price levels that can serve as support and resistance around which a market trend is forming. Indeed, TQQQ can magnify a trend, but it can also make you a loser quickly if the trend reverses. That’s why trend identification is paramount for trading TQQQ.
The 50-day and 200-day moving averages are critical, and a crossover an important signal either way. Traders also keep an eye on momentum, measured by things like the Relative Strength Index (RSI), gauging whether prices have become either overbought or oversold.
Another important consideration for swing-trading is the use of volume analysis, as increases in volume as prices move up can signal strong buying pressure, or decreases in volume in uptrends can signal the potential for weakening momentum. Ultimately, combining these technical indicators with an awareness of macro market influences, such as the release of economic data or corporate earnings, can help round out your analysis of swing trading TQQQ.
TQQQ is a leveraged ETF that multiplies the gains and losses (2x) of the Nasdaq-100 index To avoid some of the classic mistakes: Don’t forget that the type of ETF you’re using has volatility built in to it. This means that with a leveraged ETF like TQQQ, which multiplies the gains and losses (2x) of the base ETF, the index you’re tracking is amplified. If you’re swing trading with TQQQ, it’s essential that you use sound risk management. You can’t assume that, because you’re trading only with the stock market, that the risks are minimal. This is a very common mistake I’ve seen traders make. It’s dangerous to ignore good research and analysis. Don’t get caught up in the hype or a short-term trend of a stock — you need to do your due diligence.
Second, swing traders can often get caught up in trades that miss big profits altogether if they fail to have a defined exit strategy. By having very specific exit strategies, defined in advance and with a clear plan for how they can be executed, any missteps or unforeseen events can be addressed without ever straying from the trader’s intended goal. Similarly, exits that are not preplanned open traders to the risk of overtrading their holdings, also known as re-entering a trade that failed to perform as desired in the first place. With transactional costs – and the inevitable psychological fatigue from too much activity – becoming negative drivers of performance, it’s always best to stay on track and avoid the often common pitfall of overtrading. Finally, the macro picture can become part of the reason why traders get involved in the wrong trade. That can be obvious if it’s a pure macro phenomenon (eg, a move by a central bank or a virus outbreak), but it is also worth keeping an eye on market mood at all times.