- 2000: Volume 9, No. 4 QQQ: The Best of All Worlds

A new financial instrument has been added to the trading repertoire of the savvy investor seeking to take control of his own financial destiny. It is called the QQQ and it blends the best of two worlds: it permits the risk diversification associated with market index funds while, at the same time, still allowing for the trading flexibility of a single issue stock. It is a piece of the stocks of all of the firms comprising the NASDAQ 100.

Prior to trading the QQQ, you must first determine goals and define a strategy that will work. My strategy for the QQQ is to take advantage of multi-day movements. In contrast to the S&P 500 futures contract, which is the ultimate DayTrading vehicle but whose margin requirements makes it a costly vehicle to hold past the trading day, the QQQ offers overnight benefits and permits the investor the opportunity to trade trends ranging over days or weeks. Unlike an index fund that typically can be entered or exited only at the close of a trading day, the QQQ can be bought and sold at any point permitting greater control over and certainty as to the price at which a transaction is effected.

On March 10, 1999, The NASDAQ Stock Market introduced this new innovative product based on the NASDAQ-100 Index, enabling investors to make a single investment in the NASDAQ-100 companies as a whole. It acts like an index fund, but trades like a stock on the floor of the American Stock Exchange. One can buy or sell shares in the collective performance of the NASDAQ-100 Index in a single transaction—just as one buys or sells shares of individual stocks. It's a one-investment portfolio that gives ownership in the 100 stocks of the NASDAQ-100 Index. And because NASDAQ-100 Shares trade like stock, you can buy them on margin, sell short or hold shares for the long-term. When you purchase NASDAQ-100 shares, the investment is in the NASDAQ-100 Trust, a unit investment trust that holds shares of the companies in the NASDAQ-100 Index. The Trust is designed to closely track the price and yield performance of the Index—so you can expect your NASDAQ-100 shares to move up or down in value when the Index moves up or down. NASDAQ-100 Shares have been initially priced to approximate 1/40th the value of the NASDAQ-100 Index, and may be bought and sold at intra-day prices throughout the trading day—something you cannot do with conventional index mutual funds that are generally purchased or redeemed only at an end-of-day closing price related to net asset value.

The fluidity of the QQQ, its liquidity and the ease of entry and exit make it ideal for longer-term money. When you approach this market determine the following:

• Size of commitment (money invested)
• Rifle or shotgun for entry or exit
• Time of risk (Plan holding period)
• Stop placement (technique-arbitrary or proprietary)
• Reward system (ratio of risk vs. reward)
• Whether to be long or short
• Number of trades per month

In conclusion, one article is not enough to ensure success, I encourage each and everyone to learn more about the QQQ.

Tom Busby is the president and chief instructor of the Daytrading Institute in Mobile, Alabama. More information about the educational and informational services of the Daytrading Institute, the Roadmap to the Market software and the new Traderoom Live Audio internet service may be obtained by calling toll-free 1-800-970-9791 or by e-mail to tbuz@daytradingschool.com.