Leveraged ETF Trend Allocation with Volatility Targeting and Weekly Rebalancing

Summary

This allocation strategy combines a trend regime filter with volatility-based position sizing for leveraged index ETFs. It holds exposure only when price is above a long-term simple moving average; otherwise, it moves to cash. While the regime is favorable, exposure is capped at 100% and set by dividing a target annualized volatility by recent realized volatility. Rebalancing normally occurs weekly and only when the target differs from the current position beyond a tolerance band, with an optional faster reduction when exposure becomes substantially higher than target.

The document reports a TQQQ daily backtest with transaction costs and slippage, comparing the strategy with buy-and-hold and the S&P 500. It also reports that a faster daily risk-reduction variant increased turnover and had lower returns and a larger maximum drawdown in the tested history. These are historical, single-instrument results from a period the author characterizes as largely bullish; the document acknowledges the lack of walk-forward validation. The results therefore do not establish out-of-sample performance, and leveraged ETF behavior can differ across instruments and market regimes.

Key ideas

• A long-term moving-average filter determines whether the strategy holds a leveraged ETF or stays in cash.
• Position exposure is reduced mechanically as realized volatility rises, subject to a full-exposure cap.
• Weekly rebalancing and a tolerance band limit routine turnover, while an override can reduce excessive exposure.
• The document reports historical TQQQ results and a weaker faster-rebalancing variant, but validation is limited to one instrument and history.
• The reported backtest does not establish future or out-of-sample performance.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.