What is the ETF QQQ?
The Power Shares QQQ ETF seeks to mirror results that correspond to the price and yield performance of the NASDAQ index. The adviser adjusts securities from time to time to maintain the correlation between the composition and weights of the securities in the trust and the stocks in the Nasdaq-100 Index. The composition and weighting of the securities portion of a portfolio deposit are also adjusted to conform to changes in the index.
What are the benefits of using the QQQ ETF?
One of the major benefits of using the ETF is that it tracks closely with the price of the NASDAQ. If you have a small account you don’t have to take the risk of buying a NASDAQ futures contract. One futures contract can be much more that the average trader has to trade with. When buying the QQQ ETF you can buy any amount you want. If you are a small trader you can trade the NASDAQ using this ETF. Trading the NASDAQ ETF allows a trader to incorporate a long term trading strategy in their trading system.
What are the disadvantages of using the QQQ ETF?
One of the main disadvantages of using the QQQ ETF is gaps. The futures market is open all day with a small break. That means that the NASDAQ futures contracts trade night and day. With this type of trading you may get some gaps on overnight positions. If a trader had a NASDAQ futures contract that hit a stop during the night the trader could close the position. With the QQQ ETF the trader would have to wait until the stock market opens to close that position.
Can a trader trade QQQ Options?
When trading options some things are just not worth it. Options have high volatility. A trader might be up 20% one second and down 50% the next when trading options. This can be fool’s gold. The main problem with some options is the difference in the bid/ask spread. If a stock or ETF does not have much volume usually the options bid/ask is so wide that just a purchase of that option would put the trader at more that 10% loss. When the trader goes to sell they would lose another 10% on that trade. A trader would have to make 21% to just break even. The QQQ ETF has enough volume that the difference in the bid/ask make it ok to use to trade options.
Trend Following QQQ
The NASDAQ has is a good index to follow with your long term trend following strategy. Historically the NASDAQ and the QQQ ETF have performed well when used in a long term trend following system.
As you can see with the above chart the NASDAQ is a very good index to use when you are trend following long term. So the QQQ ETF is a good ETF to use in a trend following model. It is an ETF that we use in our trading system. With trend following it really does not matter if a stock or ETF is going up or down it just needs to move in one direction for an extended period of time.