Why I Watch QQQ to Trade SPY
The name of this site isn't a gimmick. I don't use a magic indicator. I spy on the money: I watch where it's flowing before I put mine to work.
SPY and QQQ in plain English
SPY tracks the S&P 500, about 500 of the largest U.S. companies. QQQ tracks the Nasdaq-100, which is heavy on big technology names.
Here's the key: those same big tech companies are also among the largest weights inside the S&P 500. When the giants move, they drag SPY with them. And because QQQ is more concentrated in those names, it tends to show the move more clearly, and sometimes a little sooner.
What I'm actually looking for
I keep a 1-minute SPY chart and a 1-minute QQQ chart side by side. Before any trade, I want both charts telling the same story.
When they disagree for more than a few minutes, the market is confused. Confused markets chop. Chop eats option premium. So I wait.
The third witness: $ADD
$ADD is the NYSE advance/decline line. It counts how many stocks are going up minus how many are going down, right now. It answers one question: is the whole market on board, or just a few names?
I never enter or exit a trade on $ADD alone. It's my tie-breaker and my seatbelt. When SPY, QQQ, and $ADD all point the same direction at the same moment, that's the best setup I know.
| SPY | QQQ | $ADD | What I do |
|---|---|---|---|
| Up | Up | Rising | Best call setup. Look for an entry. |
| Down | Down | Falling | Best put setup. Look for an entry. |
| Up | Up | Falling | Caution. Smaller size or wait. |
| Up | Down | Any | No trade. Never fight QQQ. |
Why this keeps me out of trouble
Most of my worst trades came from seeing a move on SPY and jumping in without checking QQQ. The move looked real. It wasn't. Checking one extra chart takes two seconds and has saved me far more money than any entry trick has made me.
That's the whole philosophy here: fewer trades, better trades, and then I close the laptop and go about my day.