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Stock Market Trading Rotation System

Discussion in 'Investing/Trading/Cryptocurrency/Altcoins' started by levijean, Aug 30, 2017.

  1. levijean
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    levijean Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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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
     
  2. loop101
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    loop101 Silver Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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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.
     
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  3. Laurent
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    Laurent New Contributor Read Millionaire Fastlane

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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
     
  4. MiguelHammond10
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    MiguelHammond10 Contributor Read Millionaire Fastlane I've Read UNSCRIPTED

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    Great post thanks for the insight.
     
  5. MidwestLandlord
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    MidwestLandlord Legendary Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    Interesting.

    Top performing in what metric?
     
  6. levijean
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    levijean Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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    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.
     
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  7. levijean
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    levijean Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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    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.
     
  8. ZCP
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    ZCP Platinum Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass

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    So buy stocks that are going up until they stop going up?
    Wow.
     
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  9. levijean
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    levijean Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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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
     
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  10. Tanishatheangel
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    Tanishatheangel Bronze Contributor

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    that looks like finviz, what screenings do you add as you research
     
  11. bringitnow28329
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    bringitnow28329 Bronze Contributor

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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
     
  12. levijean
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    levijean Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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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.
     
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  13. bringitnow28329
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    bringitnow28329 Bronze Contributor

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    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.
     
    Last edited: Sep 30, 2017
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  14. levijean
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    levijean Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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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
     
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  15. bringitnow28329
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    bringitnow28329 Bronze Contributor

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    Did you use a hard stop loss?
     
  16. levijean
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    levijean Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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

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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.
     
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  18. levijean
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    levijean Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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    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.
     
  19. Tanishatheangel
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    Tanishatheangel Bronze Contributor

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    this looks like finviz how do you make hard stops with that
     
  20. bringitnow28329
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    bringitnow28329 Bronze Contributor

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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.
     
  21. Tanishatheangel
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    Tanishatheangel Bronze Contributor

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    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
     
  22. S.Y.
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    S.Y. Bronze Contributor Read Millionaire Fastlane Speedway Pass

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    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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  23. S.Y.
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    S.Y. Bronze Contributor Read Millionaire Fastlane Speedway Pass

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    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.

    Which part do you need explanation on?
     
  24. Tanishatheangel
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    Tanishatheangel Bronze Contributor

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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
     
  25. S.Y.
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    S.Y. Bronze Contributor Read Millionaire Fastlane Speedway Pass

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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.
     

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