Stock rank/Momentum trading ideas

Friday, Feb 03 2017 by
22

5894df6e23c07Momentum_trading.png

5894df79c53d3Momentum_trading_2.png

I'm looking for a trading strategy and i'm open to opinions and discussion.

My criteria is simply:-

Stock rank >= 90

Momentum >= 95

Spread <=500

Market cap <= 800

Reset every month.

The screener generated 14 stocks on January2nd and generated a 14.7% return in one month.

The average spread was 1.29% leaving a very healthy profit.

All the shares still qualify for February so no transaction costs this month.


My theory is that the high momentum figure will drive the shares in the very short term i.e 30 days. The high stock rank will add some robustness whilst filtering out the weak.


thoughts???


Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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58 Posts on this Thread show/hide all

Mechanical Bull 7th Feb 19 of 58
5

I have had a go at back testing this screen on Sharelockholmes. I couldn’t replicate it exactly, as the bid spread criteria is not present (although with a market cap limit over 800M I doubt this makes much difference). More problematic is that the minimum period for assessing performance, is 3 months and so I can’t say exactly what the performance looks like if the strategy was reset every month.

The average 3 month returns point to performance over the longer term being less successful than a simple 90+ StockRank type strategy. Also, the variance was high - more than twice – so it is also higher risk.

Although it is likely that the strategy works better on paper with a one month reset, this would inevitably result in more churn and higher transaction costs. Bid spreads, stamp duty and broker fees will cut into profits, and so this kind of strategy needs to outperform lower churning strategies to actually be worth the candle.

It would be interesting to see how this pans out longer term but I would urge caution before throwing too much money into this.

Blog: Mechanical Bull Blog
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gpacker 7th Feb 20 of 58

its impossible to replicate a backtest against this on sharelockholmes?

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Mechanical Bull 7th Feb 21 of 58
1

In reply to gpacker, post #20

Sharelockholmes allows backtesting of screens against quaterly snapshots going back to 2003, This makes it difficult to test how they perform over periods of less than three months. However, I generally find it a very useful resource for testing out new ideas.

Blog: Mechanical Bull Blog
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Ramridge 7th Feb 22 of 58

In reply to Mechanical Bull, post #21

Does Sharelockholmes have all historical data of StockRanks, Momentum Ranks, Basic Ranks and Crossover Ranks to allow you to back test?

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gpacker 8th Feb 23 of 58

Hi, no it doesn't unfortunately I looked myself yesterday.

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Mechanical Bull 8th Feb 24 of 58

Sharelockholmes do have their own equivalents of QVM StockRank factors (including crossovers). The combined QVM is called the "Market" score These will not produce exactly the same results as StockRanks but I think you can consider it a close enough proxy. Here is a comparison of the two strategies with a 3 month reset:

589aea06a84e7QVM.JPG

Blog: Mechanical Bull Blog
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gpacker 8th Feb 25 of 58

Thanks MBB.

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gpacker 1st Mar 27 of 58
1

A further 6.5% return for February.

20% return after costs for the first 2 months.

I'll update with selections/removals etc later this evening.

A promising start though....

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gpacker 1st Mar 28 of 58
1

58b721a676106analysis2.jpg

Ok... so we have 3 removed and 4 added.

Lets see how she goes....


Also, having researched considerably market direction and indicators, I will continue with this system until the FTSE 100 12 Month SMA starts to turn negative at which point I will turn to cash and rebalance when it turns positive.

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herbie47 1st Mar 29 of 58

In reply to gpacker, post #28

20% return in 2 months is excellent. Just a thought if you set this up as a fantasy fund it would be easy for people to follow and for you to show on posts, also it will have the trades, it's a bit difficult to read on some screens.

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gpacker 1st Mar 30 of 58
1

Ok herbie i'll have a look tomo.

In the meantime the screen view/zoom can be increased to see selections.

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Nick Ray 1st Mar 31 of 58

How did Headlam (LON:HEAD) get a Momentum rank of 94? It did nothing all year until the middle of January and now it is up about 20%. It kind of confirms a concern I have about the Stockopedia momentum rank which is that it changes much more quickly than the other two ranks and might tend to reward volatility rather than steady performance.

Using a more conservative way of ranking by momentum (based on my own code) I find that Headlam (LON:HEAD) and also Morgan Sindall (LON:MGNS) RM (LON:RM.) are rather weak. (OK but also not great are: Severfield (LON:SFR) Northgate (LON:NTG) Vitec (LON:VTC) )

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Howard Marx 1st Mar 32 of 58
2

In reply to Ramridge, post #11

Return is one thing.

Risk-adjusted return is another.

I always remind myself of this everytime I play Russian Roulette.

;|

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gpacker 2nd Mar 33 of 58
1

Howard, this is why I believe systems like this will continue to work and not get arbitraged away, too many over estimate the risks involved. Also note this is not just a momentum strategy it is supported by other sound fundamentals.
Additionally the added holistic SMA will hugely reduce severe downturns, similar principle used through dual momentum.
Risk-adjusted is calculated assuming the strategy is held through downturns, this system will not be held through such periods.

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PhilH 2nd Mar 34 of 58

In reply to Howard Marx, post #32

Hi Howard,

So what would be you're preferred measure of risk adjusted returns and what would be an acceptable value?

Warm regards
Phil

Professional Services: Sunflower Counselling
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ls2g08 2nd Mar 35 of 58
1

In reply to Nick Ray, post #31

58b7f0a53da1dheadlam.PNG

I imagine it would be to do with earnings upgrades - unless you factored this in already?

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Ramridge 2nd Mar 36 of 58

In reply to Howard Marx, post #32

Que? I haven't mentioned or referred to "risk adjusted" in any of my posts in this thread.

But your mention of Russian Roulette is amusing.

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PhilH 2nd Mar 37 of 58
1

In reply to Ramridge, post #36

He is saying that high returns are one thing but at what cost?

So he's interested in the risk adjusted returns of the approach.

For example I've just "x-rayed" my SIPP on YouInvest and the three year details were ...

3 year annualised return 33%
Std Dev 9
Mean 29
Sharpe ratio 3.2
Alpha 25
Beta 0.3

Hope that helps
Phil

Professional Services: Sunflower Counselling
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Nick Ray 2nd Mar 38 of 58

In reply to PhilH, post #37

As an experiment I took the stocks with the best risk-adjusted returns over one year, keeping at least one from each sector, and compared the resulting portfolio with the February "high-momentum-ranking" portfolio found by gpacker in post 28.

The high momentum portfolio looks like this:

58b801af248c6gpacker.png

where the white line is the median performance and the magenta line is the mean performance of the portfolio over the previous year. You can see that the rules have selected stocks which have made big movements especially in the last 3-6 months, with the performance before July 2016 being quite flat.

The risk-adjusted-return portfolio over the same time period looks like this:

58b80213d4f5callgop.png

The "risk-adjusted" aspect tries to minimise volatility so the median and mean performance are closer and the gain is more uniform over the year. (The plot uses a log scale so a straight line would indicate zero volatility.)

Of course,as they say, past performance is not necessarily a guide to the future, so I'm not making any recommendation - just showing what filtering by risk-adjusted returns looks like.

For those curious the stocks in the second portfolio are:

RTO TET FEVR MCGN KWS BUR CTH ANCR BOO BJU FCRM CRPR APF SAT IAE

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