What is this system and why does it work?
Simple.
Stock trading system.
Based on academic research and my backtesting, strong stocks are more likely to follow the trend direction.
It’s been proven!
That’s why this system tries to buy breakouts.
I want to be honest here…
I am about to share a trading strategy with you, which is not mine originally.
I have studied the work of other quantitative traders such as:
- Andreas Klenow
- Nick Rudge
- Emilio Tommasini & Urban Jakle
If you want credit, I’d love to give it to you.
That said…
Please tell me the exact trading rules for doing this…
trading rules
number one…
I plan to trade stocks on the Russell 1000
Market: Russell 1000 Stock
These are the 1,000 largest stocks on the US stock market.
They are liquid enough for us to move in and out with relative ease.
Then use a simple trend filter.
Trend Filter: Russell 1000 is above the 100-week moving average
Why do we need trend filters?
Well, because I only want to buy when the overall stock market is in an uptrend.
I don’t buy when the market is in recession because the odds aren’t in my favor.
Simple like that!
Then the entry…
Entry: The stock has closed above its 50-week high (weekly).open on monday
This is a weekly trading system.
That’s right; you can trade the system while working a full-time job!
No need to watch the market all day.
Once a stock closes above its 50-week high, you should enter it in the open market on Monday.
So, when the market opens on Monday, we will be in the trade.
It’s important, so make a note of it!
Moving on…
Exit: When the stock falls below its 40-week low
The exit rule is self-explanatory, but I’ll share how to find it later.
Sounds good?
Ranking: Stocks that have gained the most in the last 50 weeks
Imagine this.
There are 1,000 stocks in the index.
If you had 50 to 100 stocks hitting new all-time highs in 50 weeks, which one would you pick?
Blindfolded and just throwing a dart which stock to buy?
of course not!
What we do here is use a stock filter that ranks the strongest stocks over the last 50 weeks.
Stock filters help filter out strong stocks from not-so-strong stocks.
As for risk management, it’s pretty straightforward.
Risk management: 5% capital allocation per share, up to 20 positions
Why a maximum of 20 positions?
Simply put, 5% multiplied by 20 equals 100. That is, all purchasing power is used up.
That’s right; this system has no influence.
For example, let’s say your capital is $100,000.
What you do is allocate $5,000 to each share.
But you may be thinking:
“Wait a minute, how many shares should I buy?”
let me show off
Take $5,000 and divide it by the stock price.
So let’s look at some example charts so you can see how this works.