Liquidity Model Originally published: 2022-11-13 Updated: 2022-11-19

Liquidity Model

At Shortable Stocks we are always innovating. Anyone who has been on this site for any time at all can attest to that. We are very excited to announce a new tool as part of our trading system-- our Liquidity Model.

We have developed a trading model that trades the QQQ and TQQQ ETFs and/or the E-mini NASDAQ-100 futures. It is a sophisticated system that is based on Fed liquidity. This model works extremely well. Our trading results are based on trading the QQQ, TQQQ, and NQ, but this system can easily be adapted to work with other vehicles such as options, etc.

Now, some explanation. Federal Reserve Governor, Kevin Warsh, gave a speech on liquidity and its market implications in March of 2007. It is available here.

Some highlights from this speech:
Liquidity is confidence. That is, powerful liquidity in the U.S. capital markets is evidenced when the economic outcomes are believed to be benign.
First, liquidity is significantly higher than it would otherwise be due to the proliferation of financial products and innovation by financial providers.
Asset prices do appear somewhat correlated with volatility associated with the real economy and inflation.
... liquidity in U.S. markets also increased significantly in recent years due to increased international capital flows.
Generally, high levels of liquidity offer substantial benefits to our financial system and overall economy through higher financial asset prices and a more efficient means to channel funds between savers and borrowers.

The converse is true as well. Lower levels of liquidity offer substantial headwinds to our financial system and overall economy through lower financial asset prices.

How does it work?

As usual, we won't share how the model actually works. It is a black box trading system. That is, you can see the output, but you don't get to see the inner components or internal logic. In the spirit of our Daily Trading Signals trading system, you can rest assured that this trading system has been thoroughly backtested and statistically analyzed. There are never any guarantees, of course, when dealing with future events, but we are confident that you will have great success with this new model.

This system does not trade very often. It is not a day trading system. If that's what you're looking for, then you can stop right here. We have always been of the opinion that time in the market is more important than timing the market. However, since our systems are based on some degree of market timing, it is important to include both.

You will get instructions once per week on Thursday evening (or the next business day if a holiday) about how to adjust your positions. This system trades both long and short depending on the current circumstances. There are instances where the instructions will be to close a long position at the next market open, for example, and immediately sell short. Conversely, sometimes you will be instructed to buy to cover a short position and immediately go long.


In no way are we encouraging the use of margin, but if you are not familiar with some of the advantages of trading futures, you should definitely look into it.
Read this article.

 These results are phenomenal. Again, we must stress that the future is uncertain, and the model may never again have this kind of performance, but that's the risk you take as you invest in capital markets.
The slight discrepancy in the results is due to the fact that the trades are placed at slightly different times. The trades are designed to be placed at the open following each signal. The open for the QQQ and TQQQ ETFs is assumed to be at the start of the regular trading session (9:30am EST) on the following trading day. The E-mini NASDAQ-100 futures open at 6pm EST on the same day the trading signal is generated.

We want to point out three very important aspects of these results: the average loss, average drawdown, and annualized gain. Average loss and average drawdown are extremely important when managing any portfolio. As long-time traders know, your biggest enemy is very often yourself, and it can be difficult to hold a position that is going against you. The worst drawdown that these models (QQQ and NQ) experienced was a little over 10% in mid-2020, and those trades ended up being 20%+ winners. Small average drawdowns and losses make it easier to stick to the model. The annualized gains are really just off the charts and compare to an annualized 13% for buy and hold for the same time period. Will it continue? Who knows?

If this works so well, why sell it?

That is an excellent question. First of all, of course we use it to trade, and we reserve the right to trade any of the things we develop. In fact, we use the entire site every day as it is an amazing source of information. But to get to the question, there is plenty of money to be made in the US market, especially for highly liquid trading vehicles like QQQ, TQQQ, and NQ. Our membership base will not have a meaningful impact. This site has always been about leveling the playing field for the small investor, and in that spirit we have made tools like this available. Hedge funds use a 2 and 20 model for money management fees, that is, a 2% fee of the assets under management plus 20% of the profits generated over the course of the year. Many hedge funds and larger money management companies have a required minimum capital of anywhere from $500,000 to $1,000,000. Just the 2% fee for a $500,000 portfolio would be $10,000/year and if they make any money for you it would cost even more. The idea for pricing this as we have is that at roughly $1200/year it is like we are managing a $60,000 portfolio and we don't take a share of the profits. That makes these kinds of professional level tools accessible to many more people.

How do you sign up?

The cost is $299 billed quarterly. You will get access to everything else (Full Data Package, Daily Trading Signals, etc.) on Shortable Stocks as well so it is a fantastic value. If you upgrade from any current subscription, we will refund your most recent payment.
Register for a free account to learn more and subscribe. If you already have an account, you can sign up in the "Trading System" section of the site.

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This article was written by: Anonymous
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