What is the best way to start trading an R2G model that you just subscribed to?
Some approaches I was thinking about:
Buy all the model’s holdings whose prices went down since they were bought by the model
Buy all the model’s holdings whose prices went up
Just buy all the model’s current holdings
Only buy a stock when the model is buying it
The right choice might also depend on the turnover of the model. I guess option #4 would work for high turnover models but option #3 might be better for low turnover models for example.
BTW, my rationale for each of these options:
If it got cheaper, it must be an even better deal now. The problem is that the fundamentals may have gotten worse too, but we can’t see this in R2G models.
Go with the winners. But the winners might have peaked and be sold soon.
Start tracking the performance of the model as closely as possible. Might mean more transaction costs initially though, where you buy holdings that will be sold again soon. You’ll probably have missed a lot of upside from the current holdings already.
This is what I’ve been doing so far, but will not work for low turnover models (might take you a very long time to get fully invested).
One thing you might look at is the present Rank of the stocks and whether the stocks in the Portfolio still meet your buy criteria. If you run different variations of your sim you might get a good idea of a reasonable cut-off for rank. For example you might adjust the number of possible stocks in the portfolio but put Rank > xx in the buy rules. You can optimize this and find a good cut-off, probably.
If you find a good cut-off on your rank you start with the stocks that meet your buy criteria and have a rank above your cut-off. Of course, you continue to add after this start.
It would be nice to run a sim on your other ideas: buy if it has gone down or buy if it has gone up. Not so easy but probably possible.
I think you are right. In my case, I am a big chicken and am using a slow buy-in to “dollar-cost-average.”
I think you might say dollar-cost-averaging is not usually good and I would agree. Still have to be able to tolerate the drawn-downs without being washed out at the bottom. Have to manage my irrational side.
Hi,
I think the answer may depend in part on the design of the strategy. For my R2G portfolio I would suggest to buy when the model buys, but then it is a high turnover strategy. If you try to buy at a lower price than a model, in some cases, the model may be trend following, or may tend to catch stocks just as they are going up, and you could get stuck with the losers and miss the winners. In my experience, deviating from a strategies trades generally leads to underperformance. I suggest that you ask the model designer for their recommendation. They should have the best insight into what approach is appropriate for their particular model.
Thanks guys, I’ll just buy all the current holdings. I don’t trade the very high turn over ones anyway, because commissions I have to pay would make that prohibitively expense for me.