A regime-based leveraged ETF strategy that adapts its positioning across bull, sideways, and bear markets using proprietary regime detection signals.
This page explains the Mercury leveraged ETF strategy framework. You'll learn about the regime detection system, how leveraged ETF decay works, and how the portfolio adapts its positioning across different market environments.
Leveraged ETFs like TQQQ (3x) suffer from daily rebalancing drag. Over time, this drag erodes their value relative to the underlying index. Mercury uses a proprietary multi-signal regime system to differentiate between bull, sideways, and bear markets — going long during uptrends and shorting leveraged ETFs during sideways and bear conditions to capture decay.
The strategy uses a proprietary combination of trend, volatility, and directional strength signals to classify the market into one of three regimes. Each regime triggers a different allocation profile optimized for that market environment.
Leveraged ETFs reset daily. If QQQ goes up 1% then down 1%, it's roughly flat. But TQQQ (3x) goes up 3% then down 3%, losing about 0.09% due to compounding. Over months and years, this drag compounds significantly.
By shorting TQQQ during sideways and bear markets, the strategy profits from this mathematical certainty. During strong bull markets, TQQQ flips to a long position to ride 3x leveraged momentum alongside QQQ.
Shorting leveraged ETFs carries specific risks that must be managed carefully:
Trades are executed when the regime changes or when intra-regime filters trigger. The strategy flattens positions during regime transitions and re-enters based on the new regime's allocation rules.
At each market close, proprietary trend, volatility, and directional strength signals are evaluated to classify the market as BULL, SIDEWAYS, or BEAR.
Capital is allocated according to the regime's proprietary rules. Each regime has optimized QQQ and TQQQ allocations with the remainder held in cash.
All trades execute at the next day's open price. During regime switches, existing positions are flattened first, then new positions are established.
All performance figures are based on historical backtesting and are hypothetical. Past performance does not guarantee future results. This strategy involves short selling leveraged ETFs, which carries significant risk including unlimited loss potential on short positions. The backtest assumes shares are available to borrow and does not account for borrow costs or margin requirements. Real-world trading will differ materially. This is educational content, not investment advice.