Triple Leveraged ETF Trading Strategy (44% Annual Returns)

This article challenges the conventional wisdom that long-term investing in triple leveraged ETFs (TLETFs) is an “anathema” due to issues like daily rebalancing and “beta slippage” or the “constant leverage trap,” which often lead to poor long-term performance.

We show you a triple ETF trading strategy based on the paper published in 2020 by Lewis Glenn called Long-Term Investing in Triple Leveraged Exchange Traded Funds. We also give you ann update of how the strategy has performed after 2020 up until today.

Key takeaways

• While many triple leveraged ETFs (TLETFs) perform poorly over the long term, significant exceptions exist.
• The 3X leveraged Nasdaq ETF, TQQQ, has delivered extraordinary results, achieving a total return exceeding 10,000% (a Compound Annual Growth Rate, or CAGR, of 54.4%) over its 10+ year existence. This return was more than 13 times the total return of its underlying ETF (QQQ).
• Other TLETFs targeting the S&P 500 (UPRO) and the Dow Industrials (UDOW) also achieved impressive, though lesser, long-term leverage factors exceeding their daily 3X target.
• The Drawback: Excessive Risk and Volatility, leading to volatility drag.
• These exceptional returns are accompanied by excessive volatility and significant drawdowns.
• We show you a strategy that holds equal positions in TQQQ and TMF (long term Treasury bonds).
• TQQQ experienced a maximum end-of-month (EOM) drawdown exceeding 49%. Its maximum daily drawdown (DDD) was almost 70%. Thiss is, of course, too much sstress to handle for all of us.
• Other equity TLETFs show even higher drawdowns; for example, UDOW saw a maximum daily drawdown of 80.3%, and TNA (Russell 2000) reached 88.1%.
• The strategy usess a filter to mitigate drawdowns.

The Risk Mitigation Strategy (TQQQ/TMF Portfolio) – Trading Rules

The core proposal is a strategy designed to mitigate these large drawdowns while retaining much of the upside performance:

• The Portfolio: Establish a portfolio consisting of an equal dollar amount of TQQQ and TMF (the triple leveraged ETF linked to the 20+ year treasury bond).
• The Mechanism: This strategy works because equity TLETFs (like QQQ, SPY, and DIA) are generally negatively correlated with TLT (the underlying index for TMF).
• Rebalancing: The strategy requires bimonthly rebalancing (every two months), which was found to be the optimal interval based on backtesting.
• Crash filter: If TQQQ drops 20% or more in a single day, exit both TQQQ and TMF. Move 100% into IEF (a 7-10 year Treasury ETF). Stay there until TQQQ recovers and exceeds its pre-crash price. Then return to the 50/50 split.

Strategy Performance Results

Over the 10+ years of TQQQ’s existence, the 50/50 TQQQ/TMF bimonthly strategy achieved a total return in excess of 5,800%. The resulting CAGR was 44.9%.

Critically, the maximum EOM drawdown was significantly reduced to less than 25% (specifically, 24.5%). This is roughly half the drawdown observed for TQQQ alone (49.1%).

Lewis Glenn only backtested up until 2020. The user SetupAlpha at Substack backtested until October 2025 and presented the following equity curve:

As you can see, 2022 when both stocks and bonds fell were hard for the portfolio. In 2022 there was no place to hide.

Modified Strategy for “Black Swan” Events

Although the EOM drawdown was cut significantly, the maximum daily drawdown for the basic strategy was still high at 42.2%, largely due to catastrophic, single-day market downturns (like the drop on 3/9/20 during the COVID-19 pandemic).

A modification was proposed to account for these “black swan” events: if the daily return of TQQQ drops below a preset minimum (e.g., 20% loss in a day), the entire strategy is switched to cash or a near-cash substitute (like the 7-10 year Treasury ETF, IEF). The strategy returns only when the TQQQ price exceeds the value it had when the switch occurred.

This modified strategy successfully reduced the maximum daily drawdown.

Final Caveat

The author stress that Triple leveraged ETFs are dependent on the magnitude and direction of daily price movement. While the results of this study are expected to continue if the decade-long trends persist, the general caution of caveat emptor (buyer beware) still applies.

Be careful with leveraged ETFs!