How to implement a Systematic Portfolio Trading Strategy thru Momentum

Majority of the traders I see on Facebook and FB groups are discretionary. I am not saying that they are bad when in fact some of them became millionaires by doing what they do. I've wanted to be like them, however, my day job simply doesn't allow me to be in front of the computer 90% of the time because my work is in the field. Also, having gotten married last year, my responsibilities and need for a steady income doesn't allow me the luxury of being a trader.

Although my portfolio did not suffer, since I practiced trail stops and cut loss, I wasn't able to enter into price levels that I wanted to, nor be able to catch breakouts at optimum price levels. I needed a system that would allow me to trade once a week and still be able to match or have a larger probability of beating the market...

I began my search for a trading system that allowed me to do the following:

1. Execute trades once a week. With the increase in tax for transactions in the PSE, I didn't want to dance in and out of stocks a lot.
2. Since I'm not able to enter breakouts at optimum price levels, I want the system to be forgiving in such that price entry becomes a minimal factor, if none at all.
3. I want to buy stocks that have great momentum and be able to find the next multi-bagger stocks such as MAC (+630%) or IMI (+302%).
4. I do not want stocks that are too volatile. The higher the volatility, the less shares I will buy.
5. I wanted a rigid-set schedule for my "PSE Trading/ Investing" time.
6. I wanted to make money.

My search led me to systematic trading strategies wherein Quantitative Analysis is used. I didn't have time to read financial statements nor have the patience for it. Trying to make buddy-buddy with "gurus" that had insider info was a waste of time since most of their secret info turned out to be duds, and focusing on price yielded similar results anyway. 

I needed a system based on cold hard numbers, and I believe I have found that. The system is linear regression-based to calculate and rank the momentum of stocks. The higher the momentum, the higher its priority to buy. 

The caveat here is that top ranked stocks might be nearing their peak. This is why we will trade and examine results through the entire portfolio and not individual stocks. If one stock is down, the gainers of the portfolio carry the slack, and until the system tells us to sell the laggard, it still has a 70% probability of rebounding and continuing its uptrend.

Getting to the point, this is what the ranking looks like:

You have your choice of how to allocate your portfolio if you want only blue chips, All Shares, or a mix of the 2. If you go for the mix, you can allocate half your capital to blue chips, and the 2nd half to the All Shares list.

I went with All Shares.

The rules are as follows:

1.) Pick a day on when you want to perform your transactions. I chose Monday so I can do my position sizing (more on this in no. 4) on Sunday.

2.) Check if the PSE Index is above Simple Moving Average 200. This is how we stay out of downtrends and stay in uptrends. If the PSEi is below SMA 200, NO BUYING!

3.) Buy from the top of the list until you run out of capital.

4.) Volatility affects the position. The higher a stock's volatility, the less we buy of it. That's how we will size our positions, by using the Average True Range (ATR) on a 20 period setting. The number of shares you buy will be as follows:

• Number of shares = (Capital * Risk Factor) / ATR
• Where Risk Factor:
• 0.001 = Low Risk Appetite
• 0.002 = Moderately Low Risk Appetite
• 0.003 = Moderate Risk Appetite
• 0.004 = High Risk Appetite
• 0.005 = Very High Risk Appetite
• Example: I want my risk factor to be 0.002. My capital is 100,000. So the number of ECP shares I should buy is: (100,000 * 0.002) / 8.4765 = 23.59 shares. ECP's price is Php 46.8 so minimum boardlot is 100. Since the boardlot is greater than the recommended ATR shares, I move to the next stock, GSMI. GSMI shares = (100,000 * 0.002) / 1.5722 = 127.21 shares. Boardlot for GSMI is 100, so I buy 100 GSMI shares.
• Choose only ONE risk factor for the ENTIRE portfolio. Otherwise, you will be burdened by trying to remember the different risk factors you used on different stocks.

5.) Sell if the stock is no longer in the list. 

6.) Sell if the stock goes below Simple Moving Average 100 (SMA100). This would usually mean removal of the stock from the list since stocks below the SMA 100 have lost their momentum. The SMA 100 is also one of our determining parameters for the system. You can change this to SMA 50 if you want tighter stops.

7.) If the Index moves below SMA 200, we stop buying and wait until the stocks in our portfolio are stopped out.

8.) We follow a hard stop loss of 10%. If a position goes -10% or more, we sell it no matter what.

And there you have it. A nice and tidy systematic portfolio trading system based on momentum. I will set up a virtual account in investagrams with an initial capital of 50,000. I will post the results of the system here as well as the buy and sell transactions performed.

I'll also be posting the momentum ranks once a week, so be sure to check in every now and then.

Also, I will be making a new post about how to go implementing a momentum rank portfolio system for yourself in a new post.

Feel free to post a question below and add me in Facebook or Twitter. I also put up a Facebook Group should you have any questions.

Implementing the system can be found in this post: https://goo.gl/aAWFis

Caveat and God Bless!