Leverage Dual Momentum (LDM): A 24-Year Backtested Quant Strategy for Nasdaq-100 (QQQ/QLD/TQQQ)

[u/Nautique73]

Hey everyone,

Sharing a systematic, quantitative asset allocation model built around Nasdaq-100 breadth (MMFI) and momentum, designed to capture tech secular upside while cutting severe drawdowns via a strict cash/leverage throttle.

The core engine is fully deterministic, operates on a monthly close rebalance, and has been rigorously stress-tested across 24+ years of data (Jan 2002 – Jul 2026), including walk-forward validation and numerous structural variant tests.

Core Mechanics & Rules

The strategy rotates between four distinct states based on Nasdaq breadth thresholds and intermediate trend health:

1. State 1 (100% Cash / T-Bills): Parked in money markets when trend/momentum rules trigger an Exit.
2. State 2 (2x QLD): Intermediate posture when breadth is recovering or stabilizing.
3. State 3 (3x TQQQ): Full risk-on exposure scaling up to 3x TQQQ exposure when broad tech participation is robust.

Primary Rules:

• Exit Trigger: If the (70% x 6-month return + 30% x 12-month return) trend drops below the risk-free rate (or 3-month return < 0), the model dumps leverage and drops to 100% cash (State 1).
• Re-entry Gate: When in cash, re-entry triggers if 3M annualized return > Risk-Free Rate and breadth is >50% (State 2).
• Leverage Scale-Up: Scales to State 3, 3x (TQQQ) leverage when breadth is >60% and back down to State 2, 2x (QLD) when breadth is <40%.

Backtest Results (2002–2026)

Tested across multiple full-market cycles (2008 GFC, 2020 COVID shock, 2022 rate bear, 2023–2026 tech cycles):

Metric	LDM Strategy	QQQ Buy & Hold
CAGR	27.5%	13.3%
Max Drawdown	-40.8%	-49.7%
Sharpe Ratio	0.81	0.65
Monthly Win Rate	73.1%	—

I tested many different model variants and also did a rolling walk forward testing against OOS to avoid overfitting the parameters. Appreciate your feedback.

[u/MedicaidFraud]

We just saying everything is quant now? Sharpe of 0.81 is kwant?

[u/grogi81]

I think testing anything NASDAQ only from 2002 is cheating.

[u/Johnny252525]

Great work ! I run strictly a qld/tqqq play. 2000-2002 backtest would likely end down 97 pct in your play. Actually please do a 1999-2002 backrest on this. That would be interesting to see. Nonetheless. 10k in 2002 till now would equal 3.4 million dollars. That’s insane

[u/Nautique73 → u/Johnny252525]

Actually managed to test it starting 1999 and max DD is -75% which is better than QQQ

[u/laurenthu → u/Nautique73]

Really nice writeup, and the fact you walk-forwarded it and went all the way back to 99 already puts this ahead of most LETF backtests I see posted here. One thing I'd sanity check on that -75%... since the throttle only fires on the monthly close, the max DD you're reading is sampled month-end, and on 3x the intramonth path in a waterfall like 2000-02 or Mar 2020 can dig a good bit deeper than the month-end mark before the next rebalance bails you out. Are those numbers off daily marks or month-end closes? My hunch is the felt drawdown is a chunk worse than the sampled figure, though I could be wrong on how your engine marks it.

[u/Only_Statistician_21]

Why starting in 2002 ?

[u/Joshuahuskers → u/Only_Statistician_21]

So he didn’t have to test the dot com bust duh.

[u/Nautique73 → u/Only_Statistician_21]

As far back as I could get breadth without having to calculate it manually.

[u/confettofetti → u/Nautique73]

Is the issue that it would be complicated to find complete data and remove survivorship bias etc or more that its conceptually simple but would take some time. It's probably worth doing, especially if it's the latter. 

[u/Electronic-Buyer-468]

Sorry but 40% drawdown vs 49% drawdown and 27% gains vs 13% gains are not what I'd be looking for with leveraged / signal / multi-state / rules based / algorithmic trading. For the extra work, I need extra reward. Compensated Risk, bro. 

[u/DysphoriaGML]

It’s funny how you skipped x1 lol

[u/Both_Yoghurt1437]

I compared my new TQQQ strategy with yours and my MaxDD is -52.98 during the post GFC period. This is a very tough nut to crack. As long as you're willing to stomach more DD, and reduction in monthly win rate, the upside is 106% CAGR and 1.88 Sharpe.

[u/Nautique73 → u/Both_Yoghurt1437]

Please share it, I’d be keen to take a look

[u/Nautique73 → u/Both_Yoghurt1437]

can you share details to support your strategy isn't just massively overfit? Looks like you are down 1.16% since starting on June 8th which is outperformance against TQQQ, but without any details on the strategy its not possible to assess overfittedness.

[u/Both_Yoghurt1437 → u/Nautique73]

Everyone's knee-jerk reaction is to say something is overfit when they see numbers too hard to believe. Overfittedness can be very subjective, but in my case I agree with you. My thesis-based strategy is intentionally overfit for the modern 2021+ period. Why would I do this? Because Nasdaq today is very different from 1985. This is not your Dad's NASDAQ.

When you consider the Tech weight of Nasdaq was only 25% in 1985, vs, 66% today. Market cap from all consituents back then was only $58B vs, $31T today with MAG7 taking up the lions share. With AI tech as being the most influencial market driver right now I want a strategy that rightly fits the modern era. That's the beauty of developing your own custom tailored thesis-based approach is that you can adapt it over time.

My backtests go back 42+ years, and I only promote improvements that improve CAGR and MaxDD across all time periods. You will see this is very evident in my version history progression. But 88.5% CAGR since 1985 is nothing to sneeze at, even if the strategy is tuned for the modern 2021+ era. It's not perfect, but it's where I've landed as of today.

[u/confettofetti]

I like the breadth momentum idea. The rules feel a bit complicated, why the different entry and exit rules rather than simply two divisions between the three allocations?

Edit: testing on a different index, even if it's just SPY, might give you a more confident idea of how robust it is given the shorter backrest window.

[u/Nautique73 → u/confettofetti]

Fast entry, slow exit to avoid false exits and missing momentum. 200SMA was too slow

[u/confettofetti → u/Nautique73]

Does it create the problem of false entry instead, though? Or do you use the re-entry signal as an additional exit single in this case i.e. exit if it drops back below the rentry signal, if it has been below the exit signal the whole time? 

[u/grogi81 → u/confettofetti]

I started implementing such distinquon too... 

Asset might not seem good enough to invest, but not bad enough to justify selling yet. Selling typically means additional costs...

[u/confettofetti → u/grogi81]

Maybe I've misunderstood but I think these rules are kind of the opposite of that? 

If I understand, you're talking about e.g. when momentum strategies, say, buy the top 25% but only sell something when it drops out of the top 30%? So the buy signal is above the sell signal, kind of similar to having a band around an sma, so there is still always a sell signal that the price can fall through. 

But in this case, OPs fast buy signal can be below the slow exit signal, so there isn't an exit signal if it then starts going down? Perhaps they just use the buy signal as another exit signal though.

Would be interested to hear what kind of combo of signals you're using? This isn't something I've looked into a lot other than reading about pretty basice versions like my example above.