TQQQ / QQQ Exposure Policy
Why TQQQ Needs A Different Policy
TQQQ targets 3x daily returns of the Nasdaq-100. Two structural facts make it more dangerous in distribution clusters than QQQ:
- Daily compounding decay. In choppy or trending-down markets, 3x daily reset compounds losses geometrically. A -1% / -1% Nasdaq sequence translates to roughly -5.91% TQQQ, not -6%.
- Larger drawdowns from the same correction. A 10% Nasdaq pullback typically produces a 25-35% TQQQ drawdown depending on path.
The IBD distribution day signal warns of institutional selling pressure that is not yet captured by trend/MA filters alone. When that signal fires, exposure should be cut faster on TQQQ than on QQQ.
Policy Mapping
TQQQ
| Risk | Recommended Action | Target Exposure | Trailing Stop Cap |
|---|---|---|---|
| NORMAL | HOLD_OR_FOLLOW_BASE_STRATEGY | 100% | base |
| CAUTION | AVOID_NEW_ADDS | 75% | min(base, 7%) |
| HIGH | REDUCE_EXPOSURE | 50% | min(base, 5%) |
| SEVERE | CLOSE_TQQQ_OR_HEDGE | 25% | min(base, 3%) |
Alternative actions surfaced for TQQQ:
- HIGH →
SWITCH_PARTIAL_TO_QQQ - SEVERE →
SWITCH_TO_QQQ_OR_CASH
QQQ
| Risk | Recommended Action | Target Exposure | Trailing Stop Cap |
|---|---|---|---|
| NORMAL | HOLD_OR_FOLLOW_BASE_STRATEGY | 100% | base |
| CAUTION | AVOID_NEW_ADDS | 100% (no cut) | min(base, 8%) |
| HIGH | REDUCE_EXPOSURE | 75% | min(base, 6%) |
| SEVERE | REDUCE_EXPOSURE_OR_HEDGE | 50% | min(base, 5%) |
QQQ does not need to drop to 25-50% at SEVERE because daily compounding hurts it less than TQQQ.
Trailing Stop Cap Rule
The skill always uses the tighter of the user's base_trailing_stop_pct and the policy cap. It never widens the trailing stop. If the user provides a base stop already tighter than the policy cap (e.g. base 4%, policy cap 5% at HIGH), the user's value wins.
What's Out Of Scope
- Position sizing in shares: use
position-sizer. - Tax-aware lot selection: not addressed by this skill.
- Hedge instrument selection: the action is named (
CLOSE_TQQQ_OR_HEDGE) but instrument choice is up to the operator.
Operator Notes
- The policy is deterministic. Adjust
risk_thresholdsinconfig/default.yamlto change the bands; changing exposure targets requires editingexposure_policy.py(deliberate, since the bands are calibrated to TQQQ leverage characteristics). - The recommendation is just that — a recommendation. The skill never executes orders.