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Stock Market Trading Rotation System

Anything related to investing, including crypto

ljean

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A few months ago I bought and read the book Stocks on the Move: Beating the Market with Hedge Fund Momentum Strategies, by European fund manager Andreas Clenow.

Basically, the premise of the book is to buy top-performing stocks and sell them when they cease to be top-performing stocks and then use the cash generated from the sales to buy the now current top-performing stocks. Investing in this manner will align your portfolio with the macro trends and hot sectors in the marketplace.

I coded up the system described in the book as a starting point and added some twists and mods to suit my trading style. The strategy as I designed requires only a few minutes once every two weeks to manage. The yearly returns are all over the place but the average CAGR as tested is just under 35% per year.

I plan to take this live soon and will post updates on the portfolio and performance here.

stock system.jpg
 
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loop101

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That looks interesting, but remember, since the book was written in 2015, you should disregard the results before 2015. In 2015 it had a return of -7.1%. In 2016 it had a return of 5.6%. Would you have continued to use it in 2017, when it had a (so far) 35% return?

If you are using Amibroker, I assume you are already familiar with the work of Cesar Alvarez, Larry Connors, and Howard Bandy? I have posted about them on this website.
 

Laurent

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Thanks for your advice.

Could you please tell us the main lines of the strategy explain in this book?

Thanks in advance
 

MidwestLandlord

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Basically, the premise of the book is to buy top-performing stocks and sell them when they cease to be top-performing stocks and then use the cash generated from the sales to buy the now current top-performing stocks. Investing in this manner will align your portfolio with the macro trends and hot sectors in the marketplace.

Interesting.

Top performing in what metric?
 

ljean

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Interesting.

Top performing in what metric?

My system simply looks at stocks with the highest price change with a 6-month look back. The book utilizes a more complicated method but the additional rules didnt add much in my testing.
 

ljean

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That looks interesting, but remember, since the book was written in 2015, you should disregard the results before 2015. In 2015 it had a return of -7.1%. In 2016 it had a return of 5.6%. Would you have continued to use it in 2017, when it had a (so far) 35% return?

Yes, sticking with the system and taking every trade is critical. Hopefully I get some good returns initially which will make it easier to trade through the tough periods.
 
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ljean

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I'm a few hours early, but I'm going out of town shortly and I wanted to post a month end update. It was a good month, my portfolio is up 4%. I have about 90 positions on. Aside from the initial loading of the portfolio, no other trades were triggered this month. But I will likely get out of a few losing positions next week.

For fun, here are charts of my best performing stocks.

9-29-2017 9-11-13 AM.jpg 9-29-2017 9-11-27 AM.jpg 9-29-2017 9-11-37 AM.jpg 9-29-2017 9-11-47 AM.jpg 9-29-2017 9-11-56 AM.jpg
 

Tanishatheangel

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I'm a few hours early, but I'm going out of town shortly and I wanted to post a month end update. It was a good month, my portfolio is up 4%. I have about 90 positions on. Aside from the initial loading of the portfolio, no other trades were triggered this month. But I will likely get out of a few losing positions next week.

For fun, here are charts of my best performing stocks.

View attachment 16529 View attachment 16530 View attachment 16531 View attachment 16532 View attachment 16533

that looks like finviz, what screenings do you add as you research
 
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bringitnow28329

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When you buy 90 stocks you are essentially buying an index fund and the return potential will be muted. Diversification is good but too much diversification means you limit your upside. 10 - 20 would be more reasonable
 

ljean

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When you buy 90 stocks you are essentially buying an index fund and the return potential will be muted. Diversification is good but too much diversification means you limit your upside. 10 - 20 would be more reasonable
You have to protect from single stock failure. For example, one of my positions is down over 50% on the month due to accusations of securities fraud. If I have a 10 stock portfolio that is a -5% drop.
 

bringitnow28329

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You have to protect from single stock failure. For example, one of my positions is down over 50% on the month due to accusations of securities fraud. If I have a 10 stock portfolio that is a -5% drop.


Don't trade lower priced, penny stocks/ low floaters and you won't experience a -50%. While securities fraud can happen with any company, or other similar problems, the fact is lower priced stocks trade at a low price because they are generally unprofitable and merely exist only due to massive ongoing dilution. If you want to trade these then manage the risk by reducing the position size and using hard stops. Also learn to read a chart and don't go buying/shorting over extended stocks trading several standard deviations or greater from their mean... I was a professional trader (self employed) for 12 years and now trade for an institution with $1.4 billion. We never would mess with these type of stocks. If you are trading those then it should only be for day trading and you have to be watching them every second the market is open in order to manage risk with extreme volatility that is very common in these crap stocks.
 
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ljean

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Here is my worst position from September. I bought this on a dip near $30 then the bottom fell out.

Untitled.jpg
 

ljean

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I dont use hard stops but i'll probably cut my losses this week.
 
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bringitnow28329

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You can't really trade systematically without hard stops. If you do it comes down to discipline and considering you are done 50%, sorry to say it, but your discipline is lacking. Yes you will get stopped out sometimes when you use a hard stop, but the point is your limit your losses by defining you risk and don't need to take 90 positions to diversify when you max loss is defined.
 

ljean

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You can't really trade systematically without hard stops. If you do it comes down to discipline and considering you are done 50%, sorry to say it, but your discipline is lacking. Yes you will get stopped out sometimes when you use a hard stop, but the point is your limit your losses by defining you risk and don't need to take 90 positions to diversify when you max loss is defined.
There is no right answer, you can trade 10 positions with hard stops; I can trade 90 positions without hard stops. Feel free to start your own trading thread and post your results.
 

Tanishatheangel

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You can't really trade systematically without hard stops. If you do it comes down to discipline and considering you are done 50%, sorry to say it, but your discipline is lacking. Yes you will get stopped out sometimes when you use a hard stop, but the point is your limit your losses by defining you risk and don't need to take 90 positions to diversify when you max loss is defined.

this looks like finviz how do you make hard stops with that
 
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bringitnow28329

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this looks like finviz how do you make hard stops with that

Finviz has nothing to do with trading. It just a website for charting. You enter stop losses through a broker and I personally use stops that sit on my side, rather than ones that go out to the exchange so that the market making algo's can't see them and pick them off.
 

Tanishatheangel

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Finviz has nothing to do with trading. It just a website for charting. You enter stop losses through a broker and I personally use stops that sit on my side, rather than ones that go out to the exchange so that the market making algo's can't see them and pick them off.

i personally use stops that sit on my side, rather than ones that go out to the exchange so that the market making algo's cant see them and pick them off,

could you explain that in a way that would be useable on a trading platform such as td ameritrade, like explain it in a way that a blonde could understand is what im asking
 

S.Y.

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That looks interesting, but remember, since the book was written in 2015, you should disregard the results before 2015. In 2015 it had a return of -7.1%. In 2016 it had a return of 5.6%. Would you have continued to use it in 2017, when it had a (so far) 35% return?

If you are using Amibroker, I assume you are already familiar with the work of Cesar Alvarez, Larry Connors, and Howard Bandy? I have posted about them on this website.

When you buy 90 stocks you are essentially buying an index fund and the return potential will be muted. Diversification is good but too much diversification means you limit your upside. 10 - 20 would be more reasonable

You can read Quantitative Momentum - by Wesley Gray & Jack Vogel. A bit more recent with a lot of data. I really like the way they dont simply dismiss momentum investing, look at different things such as worst drawdown.

They find that holding fewer stocks and rebalancing more frequently leads to higher compound annual growth rates.

** Interestingly enough, combining value and momentum gives the highest annual compounded return
 
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S.Y.

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You can't really trade systematically without hard stops. If you do it comes down to discipline and considering you are done 50%, sorry to say it, but your discipline is lacking. Yes you will get stopped out sometimes when you use a hard stop, but the point is your limit your losses by defining you risk and don't need to take 90 positions to diversify when you max loss is defined.

This is indeed a good way to see it. He doesn't necessarily needs hard stops. The amount of stock he takes position in is hedging his risk. I think it is a good approach for momentum.

Where I see the discipline important is on the rebalancing. If he is consistent on that and gets a good return after capital gain taxes & fees. Then he should be fine.

could you explain that in a way that would be useable on a trading platform such as td ameritrade, like explain it in a way that a blonde could understand is what im asking

Which part do you need explanation on?
 

Tanishatheangel

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Which part do you need explanation on?[/QUOTE]

well i know how to buy that parts taken care of, but where at in the buying process do you put a limit to the amount of loss your willing to take
 

S.Y.

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well i know how to buy that parts taken care of, but where at in the buying process do you put a limit to the amount of loss your willing to take

It is done after you buy.

Once you own the stock in your brokerage account, you can enter a Stop Sell & provide the price. If your stock hit that price, the shares get sold.
 
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Tanishatheangel

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It is done after you buy.

Once you own the stock in your brokerage account, you can enter a Stop Sell & provide the price. If your stock hit that price, the shares get sold.

thank you i wish there was a way of starring this so i can keep it for future reference
 

ljean

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October was pretty uneventful for me. My account went up a bit at the beginning of the month, then dipped, then ended flat. Here is my best stock that more than doubled:

best.png


And here is my worst stock that fell in half:

worst.png
 

ljean

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November was good until the last two days and I ended pretty much flat again.

My most profitable position this month:
Untitled.jpg

I got buy signals a few days ago in a couple crypto-influenced stocks that are crazy volatile. It will be interesting to watch what these positions do over time:
Untitled2.jpg

Untitled3.jpg

I've been in Overstock.com for a few months. Its been on a tear since announcing they would accept Bitcoin as payment for goods. Unfortunately it fell off a cliff a few days ago in conjunction with the increased volatility in cryptos.
Untitled4.jpg
 

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