This strategy achieves higher returns compared to a buy-and-hold strategy of the QQQ ETF, while mitigating downside risk by dynamically switching between QQQ, SPY, and cash based on momentum and technical indicators.
Strategy Rules
Momentum Calculation
Relative Momentum: Compare the total return of QQQ and SPY over a specified period (momentum window).
Calculate the momentum for QQQ and SPY using the formula:
Momentum = (Close Price (today) / Close Price (n days ago)) - 1
Optimized momentum window: 9 months (189 trading days).
Technical Indicators
Relative Strength Index (RSI)
- • Calculate RSI using a 14-day window.
- • RSI upper threshold: 75
- • RSI lower threshold: 35
Moving Average Convergence Divergence (MACD)
- • Short window: 9 days
- • Long window: 18 days
- • Signal window: 7 days
- • MACD > MACD Signal indicates a bullish signal.
Investment Decisions
Invest in QQQ if:
- • QQQ momentum is greater than SPY momentum.
- • QQQ momentum is positive.
- • QQQ RSI is below 75 (not overbought).
- • QQQ MACD is above its signal line (bullish signal).
Invest in SPY if:
- • SPY momentum is greater than QQQ momentum.
- • SPY momentum is positive.
- • SPY RSI is below 75 (not overbought).
- • SPY MACD is above its signal line (bullish signal).
Move to Cash if:
- • Both QQQ and SPY momentum are negative.
- • Indicators do not align (e.g., overbought or bearish signals).
Portfolio Rebalancing
- • Rebalance the portfolio at the end of each trading day based on the above rules.
- • Allocate 100% to the selected asset (QQQ, SPY, or cash) based on the decision rules.
Strategy Allocation
Portfolio Allocation
- QQQ: 41.0% - Tech-focused growth exposure
- SPY: 48.6% - Broad market exposure
- Cash: 10.4% - Capital preservation during downturns
Historical Data
- • Data Source: SPY and QQQ ETFs from 2004 to the present.
- • Technical Indicators: Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD).
- • Momentum Calculation: Based on the closing prices over a 9-month window.
Performance Metrics and Results
Maximum Drawdowns During Market Crises
This chart compares the maximum drawdowns experienced by the Q Fund, SPY, and QQQ during three major market downturns. Lower values indicate better downside protection.
Investment Performance Comparison (2004-2024)
This chart shows the growth of $100,000 invested in three different approaches from 2004 to 2024: Q Fund (Navy Blue), QQQ (Medium Blue), and SPY (Light Blue).
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Past Performance Is Not Indicative Of Future Results.