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Simon_n
@Simon_n
3Settimana·

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.

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Sansebastian@Sansebastian
3Settimana
Why start with 30 shares?
Why not start with 3-5 stocks that meet your criteria?
This will give you a much better overview and you can always add more shares if things go well.
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Simon_n@Simon_n
3Settimana
@Sansebastian The idea behind this was to diversify within the strategy and improve the success rate. For example, if all 3 stocks give false signals, I have to switch everything directly back into cash.
But of course what you say makes sense, maybe I'll start with 5 and then add more. Thank you.
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Sansebastian@Sansebastian
3Settimana
@Simon_n When it comes to momentum, I would follow the "less is more" principle anyway 🙂
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Simon_n@Simon_n
3Settimana
@Sansebastian In what way? Do you think it would be better to filter out only the TopX by performance?
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Sansebastian@Sansebastian
3Settimana
@Simon_n if by diversify you mean that you would take shares from different sectors, then yes. Take the TopX and you're done. Backtest that and then you can always expand
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Simon_n@Simon_n
3Settimana
@Sansebastian Yes, that's what I meant, but I hadn't yet defined a clear rule for it. I would have simply taken the ones with the highest market cap from those that fulfill the rules in order to bring in some stability. But your approach also sounds very sensible, perhaps it can be combined.
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Tenbagger2024@Tenbagger2024
3Settimana
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Simon_n@Simon_n
3Settimana
@Tenbagger2024 Thanks, that's exactly the kind of screening I'm looking for, or I'll make my own in TradingView 🚀
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Tenbagger2024@Tenbagger2024
3Settimana
Hello dear. I have had good experiences with buying shares with momentum.
However, my approach here was to only buy shares where I like the multiples. And not just purely based on a story.
I would also test the whole thing with fewer shares first.
And I would also refer to different indices when making my selection.
If you rank the Russel by momentum, for example, you will see a lot of biotech stocks. Many of these are not profitable and you therefore also have a high risk. That's why I think it's important to be selective here.
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Simon_n@Simon_n
3Settimana
@Tenbagger2024 Thank you, I have already thought about that. I would at least try to pick companies with low correlation, using different sectors. Or what do you think about filtering by e.g. cash flow or earnings growth?
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Tenbagger2024@Tenbagger2024
3Settimana
@Simon_n
I also like to look for momentum stocks that have an acceptable P/E ratio. Then I look at other multiples such as earnings growth, EbiT margin, free cash flow, sales, etc.
But I look for stocks based on momentum
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Tenbagger2024@Tenbagger2024
3Settimana
@Simon_n
With a modern share screener you can also enter various parameters. And it selects the shares for you accordingly.
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Simon_n@Simon_n
3Settimana
@Tenbagger2024 I see, thank you. I guess such a basic analysis of the multiples can also be included without spending a lot of time
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Stulle 🥪@Stullen-Portfolio
3Settimana
So "buy the hip" rather than "buy the dip"? 😉

Greetings
🥪
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Simon_n@Simon_n
3Settimana
@Stullen-Portfolio Are you suggesting that this means you almost always buy at the ATH? If so: Yes! This is a condition that you have to accept with momentum strategies. However, the fact is that trends tend to continue. So it's harder to predict when a trend will end than it is to simply keep surfing the wave *until* it finally ends. That's my theory behind it. And since I, and many others, fail at market timing à la "I'll wait until it goes down", I'll have to put up with making expensive purchases from time to time 😬
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