Vibha Jha has many reasons to exit a position in the heavily leveraged TQQQ ETF — but only two reasons to enter.
"If it's a follow-through day, I'm in," Jha told Investor's Business Daily's "IBD Live" show. Jha is a top trader and former health care executive. Her second rule is watching for three days of higher highs and higher lows after a correction. "That's a trigger for me to at least initiate a position," she said.
Her target is the TQQQ, a 3x leveraged ETF that tracks the Nasdaq 100. Investing in the ETF allows Jha to keep growing money (when conditions are ideal) without the market risks individual stocks have. "When there's a follow-through day, if I don't have an individual stock to hold, I will sometimes be 100%," she said.
"I'm not (taking positions in TQQQ) to hold it longer term," she said. "I'm doing that as I want to be in the market … I'm going to start by putting my money here so it grows while I find something else."
Managing A Proper Position
To exit risky positions, Jha watches for multiple sell signals that occur close together. She tracks whether the TQQQ ETF is maintaining new highs or if it's pulling back, and whether it has enough support or if it's seeing declining volume.
"I also look at what's happening with the overall market, like the number of distribution days." She watches for patterns like three consecutive down days with rising volume and lower highs and lower lows. She also watches for whether a new high forms support, or is rejected three times, indicating a potential pullback.
The Great And Terrible TQQQ
Jha warns investors to be aware of the risks that come with investing in leveraged ETFs like the TQQQ. Because of the borrowing involved, losses are amplified and the TQQQ can even crater if the underlying index declines by more than 33.33%.
Jha says she monitors her position in leveraged ETFs constantly, and warns that investors can get hurt if they do not apply the same level of scrutiny to their positions. "There is a learning curve, and no matter how experienced you are, there's going to be those bad days."
"There is some art to this as well as the science," Jha said.
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