Momentum System

[KateMoloney]

Started systems development just over a week ago. Its been a process to get my head around this strategy. 
Started with the mentoring template and with Craigs help have a template I understand and am happy to work with.

Created SOPs for running ASX / longer term systems on Amibroker as there are few differences VS backtesting MOC systems.
Will start testing with dividends (ASX).

Have read through the forum and there were lots of helpful suggestions. Got 8 pages of notes from all the forum posts – thanks guys.

This webinar really helped me understand the structure of a momentum system;
https://www.thechartist.com.au/how-to-build-a-systematic-relative-momentum-model/

Summary from webinar
1) Select a look back period
2) Calculate momentum and rank
3) Position sizing (fixed or volatility based)
4) Index filter (is the market up or down) 
5) Is the individual stock trending up? (eg measure with long term MA)
6) Execute your system weekly or monthly

Books worth reading (I haven’t read these yet – they were recommended)
Stocks on the move
Dual Momentum 

Have tested a few basic strategies and figured out what does not work. Testing period from 2005 – present.
CAGR is 15% – 17% with a 50-60% drawdown (mainly in the 2012 -14 period).

Will spend the rest of the weekend researching, testing and pondering …..

[KateMoloney]

Update:

Tried testing dual ROC/dual ATR. Performance of system boosted by one stock in 2013 that profited 800% plus.
May end up scrapping the idea.

The stocks on the move book has been useful, even just for ideas to test and tweak.
Will continue documenting and adding research notes to this thread.

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“Perhaps if we measure the distance between the 50 day moving average and the 100 day moving average. By doing that, we’ll have a quantifiable measure of the momentum. We could even make it simpler, and just measure the distance between the price and a moving average. Now compare the percentage distances for a large group of stocks, and you’ve got a rudimentary ranking method. It’s not a great ranking method, but it’s a decent start.”

— Stocks on the Move: Beating the Market with Hedge Fund Momentum Strategies by Andreas Clenow
https://amzn.asia/967UI90

[KateMoloney]

Exert from book…..

“We’ll use annualized exponential regression slope, calculated on the past 90 days, and then multiply it with the coefficient of determination (R2) for the same period. This gives us a volatility adjusted momentum measurement. Remember that if a stock is trading below its 100 day moving average or has a recent gap in excess of 15%, it’s disqualified.

Calculate position sizes, based on 10 basis points. Calculate position size, using a simple ATR based formula, targeting a daily move of 10 basis points. The formula to calculate number of shares is AccountValue * 0.001 / ATR20. Check index filter. You’re only allowed to open new positions if the S& P 500 Index is above its 200 day moving average. If it’s below, no new buys are allowed.

Construct the initial portfolio. Start from the top of your ranking list. If the first stock is not disqualified by being below its 100 day moving average or having a 15% + gap, then buy it and move to the next. Buy from the top until you run out of cash. Rebalance portfolio every Wednesday.

Once a week we check if any stock needs to be sold. If a stock is no longer in the top 20% of the S& P 500 stocks, based on the ranking, we sell it. If it’s trading below its 100 day moving average, we sell it. If it had a gap over 15%, we sell it. If it left the index, we sell it.”

— Stocks on the Move: Beating the Market with Hedge Fund Momentum Strategies by Andreas Clenow
https://amzn.asia/7A6NcLf

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