3Sem.·

First tranche of Momentum shares

The trend-following project I mentioned entered its first round today with the following ten stocks:

AeroVironment $AVAV (+0,06 %) , AppLovin $APP (-2,41 %) , Innodata $INOD (-3,33 %) , IREN $IREN (+2,7 %) , Kraken Robotics $PNG (+4,15 %) , Micron Technology $MU (-0,5 %) , Oklo $OKLO , Ondas $ONDS (-7,52 %) , Nebius $NBIS (+0 %) and Robinhood $HOOD (+0,26 %) . Each equally weighted, in a Trading212 Pie.

In my opinion, these companies had solid ratios and met the desired technical metrics (mostly beta > 1.5 ; 1M performance > 20% ; price > 50EMA).

Hopes / forecasts:

The model is designed to avoid the severe drawdowns that normally accompany high risk high reward stocks. The stocks have been selected so that all have a distance of about 15% from their 50d EMA.

To explain: the EMA is a moving average that reacts more strongly to trends or trend changes. In my experience, it often serves as support and a downward break may indicate a trend reversal.

This is theoretically perfect for this model: as long as the share is trading above its EMA, it is in a sustained uptrend (which the model wants to "surf" 🏄‍♂️); if it falls below it, it is sold. This mechanism therefore acts more or less like a dynamic trailing stop loss.

However, this should not happen immediately, as all shares are still above this average.

No investment advice, this is still an experiment. Updates to follow.

Simon_n

@Simon_n

3Sem.·

Boosting returns with momentum shares?

I would like to start a little experiment: I normally avoid individual stocks as I don't have the expertise to successfully deal with fundamental analysis.

However, as I still want to profit from stocks with strong momentum, I have come up with the following rule:

About 30 stocks that have strong momentum right now (e.g. >20% over one month & >30% over three months) are bought, larger market cap is preferred.

As a hedge:

If a stock falls below its 50d-EMA (Exponential Moving Average), the respective capital is shifted back into cash.

Fundamental data is deliberately ignored here, only momentum is taken into account in order to keep the whole thing as simple as possible. What do you think? Especially @Tenbagger2024 from whose posts I got the inspiration for this.

17 Commentaires

Tenbagger2024@Tenbagger2024

3Sem.

Good luck and keep us up to date

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Maximilian@Max095

3Sem.

@Tenbagger2024 Congratulations on $PNG - you've shown your skills once again 😊🚀

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Tenbagger2024@Tenbagger2024

3Sem.

@Max095
My dear,
Thank you, but why skill. We are both creative minds and are good at assessing future technologies.
Then we look at figures and valuations.
Then we need discipline and patience.
Because I've already been well in the red with the share. But I didn't sell then.
I was happy about it and bought more.
And now I'm happy to have a large position and am glad that I was able to buy again

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Maximilian@Max095

3Sem.

@Tenbagger2024 You wrote that beautifully. 😊 But you always find the special pearls. 😉

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TradingHase@TradingHase

3Sem.

I can't wait to see how this continues 👍🏼

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Patrick ₿ateman@fastlane

3Sem.

Have you backtested the strategy? What CAGR, Vola and MaxDD does the strategy have?

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Simon_n@Simon_n

3Sem.

@fastlane No, I have not. Because I don't think that's possible or sensible. The stocks are hand-picked, and I don't know of any software that can pick and simulate stocks in the backtest exactly according to the set criteria (if you know of any, please let me know 🥲).
Vola is certainly high, but I accept that.
The drawdown for a single share is never actually >20%, as the EMA is about that far down and is sold immediately if it falls below the close. After this trigger, the share is put aside for a few months and monitored until a new buy signal emerges.
The prerequisite for high drawdowns to occur in the overall strategy would be that almost all the shares bought reverse immediately after purchase, break their upward trend and run into the SL. I think this is unlikely, but it is possible.

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Xavi@Xavi80

3Sem.

Doesn't look bad, Simon, i'm quite curious to see the result of your experiment , please keep us updated :) By the way, how are you planning to keep the stocks under control? is there any way to automate it? or you will keep an eye on them one by one and modify the stop loss line manually?

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Simon_n@Simon_n

3Sem.

@Xavi80 Thanks, will do. There is a way to automate the signals for selling them. But that would require a paid TradingView subscription, so I just check them manually after every days close 😄
There isn‘t a stop loss line in that sense, the signal to trigger the stop loss is the Price closing below the 50-day exponential moving average.
I assumed here that that is a sufficient stop loss, since that line hardly ever is further below the price than 20-25% for these stocks except for large gaps (e.g. after earnings day). So that line acts as a dynamic stop loss.
After a stock has been sold due to that signal, I will keep an eye on them, should they regain their trend.

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Xavi@Xavi80

3Sem.

@Simon_n Alright got it now, you will use the closing price ignoring if the price line cross the ema 50 while the market is open. Since this is an experiment maybe i'll try it too in a safe enviroment like a demo account in IBKR. Here we all have our porfolios for the long run, but hey, if at the end of the day the success rate of this experiment is high enough to leave a possitive balance even if it implies some losses it could be quite profitable. Working as a stock babysitter one hour a day is much better than most normal jobs :D

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Simon_n@Simon_n

3Sem.

@Xavi80 Yes, definitely use a demo account for that. I only use a very small percentage of my portfolio balance for it too.
There‘s still lots of variables to tweak, so feel free to experiment with those in a demo account. I‘ve found an EMA length of 50 to be a solid compromise between too many falls alarms (with shorter lengths) and too much delay in drawdowns (with longer lengths) from just looking at the chart.
The amount of stocks is also variable, but I would assume that more stocks give a more consistent return and less overall drawdown.
That’s all just assumptions though, lets see how it works out 🫡

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Luis@Hyperisk

3Sem.

Hi Simon, also some question, how are you doing then with the pie? I am also on T212, so imagine one stock has an extreme upward movement, are you going to rebalance the pie, or withdraw from full pie or take that stock from the pie and sell it separately?
I am been experimenting myself, seems you cant sell a full position with one with the stock inside the pie

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Simon_n@Simon_n

3Sem.

@Hyperisk That‘s something I haven‘t figured out yet. I could imagine that monthly or weekly rebalancing is useful to take some profits.
Do you mean that you can‘t fully sell a position from inside the pie? That would be pretty annoying.
Is it possible to take a stock out of the pie and then sell it though?

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Xavi@Xavi80

3Sem.

@Simon_n sure, once i get some free time i'll try your technique, sounds like a fun experiment, thank you for the idea :)

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Luis@Hyperisk

3Sem.

@Simon_n unfortunately you can't, as far as could see, only way is to export that stock from the pie and sell.
Or withdraw and reduce the weight on the others, but always will be some amount from the other remaining stocks that will be sold

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3Sem.

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Simon_n@Simon_n

3Sem.

@dividend_dynamo_2673 And we are currently in a bull market. I'm not planning to hold this as a long-term part of my core, but as an occasional yield booster.
I think the false signals in sideways markets are unlikely, as I'm not trading an index but individual stocks, and there are usually some of them that have good momentum even in sideways markets.
If the shares go against the grain, they are soon sold, and after a sell signal we wait until new momentum builds up, which I should perhaps have mentioned.
I'm sure the whole thing can also be applied to short positions, but that's not in my interest.

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