We have received a number of questions on how to manage one's gains in their ETF positions if one bought weeks ago when our market direction model switched signals from a sell to a buy.

We are trend followers so we would not advocate taking profits during a trend. As far as adding to one's position, also known as pyramiding, it depends on one's level of risk. Each investor must determine the level of volatility that suits them. Holding 100% of one's account in a 3x ETF may be too bumpy a ride for some. And some investors may prefer to hold smaller positions with more diversification, while others may not mind having their account sitting in just one or two ETFs. Since ETFs are diversified by their very nature, there is minimal major gap down risk compared to individual stocks which could lose half their value overnight, so holding just one or two ETFs could be suitable to those who prefer to hold several or more stocks.

 

Here is a recent FAQ we posted:

Q: My question pertains to add points on the ETF's. I went long the 3X TQQQ and TYH on Sept 1 and have substantial gains (Thank you Dr. Kacher!). I do have some funds available that I would like to possibly add providing no change of MDM signal. What is the best way to use the MDM service to add to an ETF position? I had noticed "ants" in the Nasdaq Composite being up 12 out of the last 15 days. If one is trading the TQQQ, could one conceivably add to a position on an "ants" consolidation breakout to new highs in an index just like with an Individual stock "ants" breakout? I assume the sign of strength of the "ants" could be interpreted with both an index and Individual stock.

Also, I am wondering if it's best to use the MDM as an "all in" on each signal (buy and sell, assuming one has the risk tolerance) or can one add on/wait for, low vol pullbacks to 10,20, or 50 day moving averages in the indices and other various lower risk entries like Index Pocket Pivots?

 

A: Pyramiding is a personal decision that depends on each investor's risk tolerance levels. Some prefer lower volatility in their trading accounts than others. That said, since you have profits, you have cushion, so could add to your existing position since you are in a psychologically strong position.

The ants work for stocks, but for indices, and thus ETFs, price/volume action is the best indication thus my model weighs in this factor most heavily.

In terms of going "all in" or piecemeal, it depends on one's position sizing style. One could go all in to the respective ETF with each change in the model's signal, but the volatility would be greater, especially with a 3x ETF, than if one were to move in, say, with a half position, then increase it to a full position as the uptrend (or downtrend) continued. Keep in mind that many trends these last few years are shorter lived than they were in cleaner trend trading decades of the 1980s and 1990s.