Overview
Triple Filters Momentum (TFM) is a systematic, rules-based approach to portfolio allocation built on a simple objective:
participate in trends while managing downside risk.
The framework combines three key elements:
market regime (broad trend)
relative strength (momentum)
risk control (defensive allocation)
It is designed to remove discretion, reduce emotional decision-making, and provide a repeatable process over time.
Core Allocation: QQQ, SPY or Cash
At its core, the strategy rotates between:
QQQ (growth / technology exposure)
SPY (broad market exposure)
Cash (defensive position)
Why these ETFs
QQQ captures high-beta, growth-driven trends, typically leading in strong bull markets
SPY provides diversified exposure to the overall market, often more resilient in mixed environments
Cash is used as a risk-off asset when conditions deteriorate
This simple universe ensures:
high liquidity
low costs
ease of execution
robustness across market cycles
Advanced Version: TFM ++ (TQQQ / UPRO / Cash)
A more aggressive variation replaces core ETFs with leveraged equivalents:
TQQQ (leveraged Nasdaq exposure)
UPRO (leveraged S&P 500 exposure)
Cash
Important considerations
This version is designed for experienced investors only.
significantly higher volatility
large drawdowns are possible
requires strict discipline and adherence to rules
The objective is not to increase complexity, but to amplify exposure to strong trends, while still relying on the same defensive framework.
This approach is not suitable for all investors and requires a strong tolerance of drawdown.
The Three Filters
1. Market Regime (Macro Filter)
The first layer evaluates the overall market environment.
The goal is simple:
participate in favorable conditions
reduce exposure during adverse regimes
This prevents remaining fully invested during prolonged downturns.
2. Momentum (Relative Strength)
The second layer determines which asset to hold.
Between QQQ and SPY, the strategy selects the one showing stronger relative performance.
This ensures capital is allocated to the leading segment of the market, rather than holding a static allocation.
3. Risk Control (Defensive Allocation)
When both trend and momentum conditions weaken, the strategy moves to cash.
This is a critical component:
limits drawdowns
reduces volatility
preserves capital for future opportunities
Cash Management
During defensive periods, cash is not held idle.
Instead, capital is allocated to short-term Treasury ETFs such as SGOV, which provide exposure to U.S. Treasury bills.
Rationale
earn yield on idle capital
maintain high liquidity
preserve capital with low risk
This approach allows the portfolio to remain defensive while still generating interest during risk-off environments.
Why Monthly Execution
The strategy operates on a monthly basis.
Rationale
Lower transaction costs
Reduced noise (avoids reacting to short-term volatility)
Simpler execution (easy to follow and implement)
Better investor behavior (less emotional decision-making)
High-frequency adjustments often lead to overtrading and inconsistent results.
A monthly process strikes a balance between responsiveness and stability.
Execution
Rebalancing is done once per month at market close.
In practice, this can be implemented using standard ETF orders, including market-on-close (MOC) orders where available.
Philosophy
TFM is built on a few core principles:
Simplicity over complexity
Process over prediction
Discipline over discretion
The objective is not to forecast markets, but to systematically react to them.
Limitations
No strategy is perfect.
performance will vary across market regimes
periods of underperformance are expected
backtests are not guarantees of future results
The strength of the approach lies in its consistency, not in short-term outcomes.
Access to Allocation
The framework is public.
Execution is not.
Monthly allocations, ETF selection, and portfolio updates are shared in the newsletter.
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Backtest & Data
For transparency, the full historical backtests and data are available below
These are historical simulations used to illustrate the framework.
TFM Core (QQQ / SPY / Cash)
View full backtest: [Google Sheet link]TFM ++ (Leveraged) (TQQQ / UPRO / Cash)
View full backtest: [Google Sheet link]
Disclaimer
This content is provided for informational and educational purposes only and does not constitute investment advice, an offer, or a solicitation to buy or sell any securities.
Past performance is not indicative of future results, and all investment decisions remain the sole responsibility of the reader.