That sounds like a well-defined strategy. Using technical charts for entry and having a clear exit point can help maintain discipline. Chart Ink screeners are a good tool for identifying potential stocks. Have you found any particular technical indicators or patterns to be more reliable for your entries?
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What is good rebalance frequency 7,15,30, 90 days?
The rebalance frequency plays a major role in RAR (Risk adjusted Returns), the above mentioned frquencies hav their own pro and cons kind go throgh the same:
Choosing the optimal rebalancing frequency for a momentum portfolio depends on balancing transaction costs, capturing momentum, and managing risk. Here’s a comparison of different rebalancing frequencies based on various studies and practical considerations:
7 Days (Weekly)
Pros:
- Captures Short-Term Trends: Quickly adapts to changes in stock performance, capturing short-term gains.
- Reduces Drawdowns: Minimizes the impact of losing positions by frequently exiting underperforming stocks.
Cons:
- High Transaction Costs: Frequent trades increase costs, which can erode returns.
- Tax Implications: More frequent trading may lead to higher short-term capital gains taxes.
- Increased Volatility: High turnover might increase portfolio volatility.
15 Days (Bi-Weekly)
Pros:
- Balance of Responsiveness: Provides a middle ground between capturing short-term trends and managing transaction costs.
- Reduced Volatility: Slightly lower turnover compared to weekly rebalancing, potentially reducing volatility.
Cons:
- Still High Costs: Transaction costs and tax implications are still relatively high.
30 Days (Monthly)
Pros:
- Optimal Balance: Many studies suggest that monthly rebalancing captures momentum effectively while managing costs. Jegadeesh and Titman (1993) found monthly rebalancing to be effective for momentum strategies (Smallcase).
- Lower Transaction Costs: Compared to weekly or bi-weekly, it significantly reduces transaction costs and tax implications.
- Practical for Individual Investors: Easier to manage and less time-consuming.
Cons:
- May Miss Short-Term Trends: Less responsive to very short-term market changes compared to weekly rebalancing.
90 Days (Quarterly)
Pros:
- Low Transaction Costs: Minimizes transaction costs and tax implications.
- Less Time-Consuming: Easier to manage with fewer trades.
Cons:
- Delayed Response: Slower to respond to market changes, potentially missing short-term momentum shifts.
Empirical Evidence and Practical Recommendations
- Jegadeesh and Titman (1993): Found that holding periods of 3 to 12 months produced significant abnormal returns for momentum strategies (Smallcase).
- Asness, Moskowitz, and Pedersen (2013): Showed that momentum strategies generally perform well, but net returns after transaction costs can vary based on rebalancing frequency (smallcase).
- Lesmond, Schill, and Zhou (2004): Highlighted the impact of transaction costs on high-frequency trading strategies (Smallcase).
Conclusion
For most individual investors, a 30-day (monthly) rebalancing frequency is generally optimal. It balances the need for timely adjustments with manageable transaction costs and practical implementation. However, if you are dealing with a highly volatile market or have very low transaction costs, you might experiment with shorter frequencies like 7 or 15 days. Conversely, if minimizing costs is a priority and you can tolerate some lag in responsiveness, 90 days could be suitable. Ultimately, backtesting your strategy with different frequencies can help determine the best fit for your specific goals and market conditions.
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All these studies and conclusions are not taking into account the universe we are dealing with. They might have assumed S& P 500 index .
But what about our different universes?
Like Nifty 50, Nifty Next 50, Midcap 150, Smallcap 250, Microcap 250…For all these different uinverses, same Monthly rebalancing cannot be optimum. Kindly advise this. Also I have started with LargeMidcap 250, where largecap 100 stocks and midcap 15p stocks are included. For me what will be optimum rebalancing strategy?
And during the period , if any stock is going below 10% of my purchase price, should i intervene and sell or , should i wait for rebalancing day?
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The price action Remains same, do a paper trade on all these time frame strategies note down your do and don’ts apply that in your real trade, atleast 90 trading session required for paper trade you will definitely find good results. SL as per your risk appetite.
I don’t use SL, some may that is fine, try that also in paper with and without SL.
Screener can be used here?
Strategy is based on price action and depends on the universe you choose, don’t know the screener utility here.
I think @dhusarbikel is asking about the screening tools to get the list of stocks and @Sujata is asking if Screener can be used for that purpose.
@R_Sawkar What are using, Chartink, own google sheets, a watch list of stocks from which you select etc?
Screener can be used with DMAs 50 and 200, as they provide them.
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Okay. Got the point.
Thank you, Chaitanya, I use google sheet, screener utility is not there in my model. I use the condition
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Nifty spot 50 EMA> 200 EMA condition for momo pf active, when it breaks then
2/3 will be in Gold, 1/3 will be in liquid bees.
Creating a momentum portfolio using Google Sheets involves using the GOOGLEFINANCE function to pull in live and historical stock data. Here’s a basic outline to get you started: -
Set Up Your Sheet: Create columns for stock ticker symbols, current prices, historical prices, and relative strength calculations.
-
Import Live Data:
- Use the formula
=GOOGLEFINANCE("ticker", "price")to get the current price. - For historical prices, use
=GOOGLEFINANCE("ticker", "price", DATE(year, month, day)).
- Use the formula
-
Calculate Relative Strength:
- Determine the recent and medium-term performance. For example, if you want to compare the price from 30 days ago to today, use the formulas
=GOOGLEFINANCE("ticker", "price", TODAY()-30)and=GOOGLEFINANCE("ticker", "price", TODAY()-90). - Calculate the percentage change:
=(current price - historical price) / historical price.
- Determine the recent and medium-term performance. For example, if you want to compare the price from 30 days ago to today, use the formulas
-
Rank Stocks:
- Use the
=RANKfunction to rank stocks based on their relative strength. - Sort the stocks from strongest to weakest.
- Use the
-
Update Automatically:
- Google Sheets can update the data automatically, ensuring your momentum portfolio reflects the latest market information.
For detailed guidance and examples, you can check out resources from Tradinformed, Trade Brains, and Invest Some Money, which provide step-by-step instructions and use cases [❞] [❞] [❞].
@ChaitanyaC as I am occupied with some important stuff, may not be replying for some time, please if you could manage the queries, I will try to be back soon.
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@ChaitanyaC , if you dont want to do all this google sheet stuff, then there is momoindiascreener.in, who provides the list of your choice. They are paid subscription. I have taken it. I have no vested interest. And not a recommendation, just another way to get readymade list.
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Yes, checked it. Explored it a bit, yet to check all the parameters.
Have you checked all the features? Do you think it will help with your chosen style of momentum investing?
I have selected Largemidcap 250 universe with top 20 stocks. Mostly re-balancing 15 days interval. Lets see how it works out.
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sir from this site, i observed that nifty200 momentum30 didn’t beat smallcap index returns in the last 4 years - is there a different expectation that if the momentum is considered for only small or microcap universe and not top 200 and considering the current bull run in these segments, the returns will be much higher?
How you are able to compare these returns from this website?
they mentioned it in the dashboard - with month wise and year wise data for each index since 2000 and for newer indexes from when it started
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inclusion of smallcaps definitely give a boost to the returns of a momentum portfolio. However they also go through huge drawdowns. In 2018-19 they went through 40-50% drawdowns - which the Nifty 200 Momentum 30 index didn’t went through! So it’s all about whether you can stomach such a drawdown.
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This looks quite interesting @Mudit.Kushalvardhan is there any resource on how to use this for beginners?
thank you sir for the response. yeah, the drawdown is to be expected and surely taken into consideration.
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my question was since there is no way to compare for me (from the site) - did a momentum index of microcap or small cap beat its respective indexes comfortably in the last 3 or 4 years?
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separately, i am sorry if i missed it in this thread but what should be the position sizing? same as buying 1 share of the highest priced stock and depending on it the quantity for the rest of the stocks?
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