Trend Trading Australian Shares 3. Rotational...

3. Rotational Trading

Trend Trading Australian Shares

Peter Aubourg

Review of “ Finding Trending Shares”

• The Edge -> Long term UP trend.

• Weekly Timeframe ( not daily )

• Measure Long term UP trend -> ROC of a MA -> Long Term RSI

• Rank shares -> Watch list High Momentum Shares

Rotational Trading( Simplified)

Week 1. Buy top 10 shares in the trend Ranking.

Week 2. Own top 10 shares in the trend Ranking.

( Sell shares not in top 10, Buy shares new to top 10)

Week 3. Repeat

Week 4. Repeat

Week 5. Repeat

etc, etc, etc

Ranking Changes over 20 days

Ticker Start +1 Day +2 Day +3 Day +4 Day +5 Day +6 Day +7 Day +8 Day +9 Day +10 Day +11 Day +12 Day +13 Day +14 Day +15 Day +16 Day +17 Day +18 Day +19 Day +20 Day

OMH.au 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

KGN.au 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

A2M.au 3 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 3

BAL.au 4 4 4 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 3 4

ALU.au 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 6

KDR.au 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 7 8 8 8 8

RBL.au 7 7 7 7 7 8 8 8 8 8 8 9 9 9 9 11 11 12 12 12 13

LOV.au 8 8 8 8 8 7 7 7 7 7 7 7 7 7 7 8 8 7 7 7 7

APX.au 9 9 9 9 9 9 9 9 9 10 10 10 10 11 11 10 10 10 9 9 9

NEC.au 10 10 10 10 10 10 10 11 11 12 12 12 12 12 12 12 12 11 11 11 11

NEA.au 11 11 11 12 13 13 13 13 13 14 14 14 14 14 14 14 14 14 15 15 16

BUB.au 12 15 16 16 16 17 17 17 17 17 17 16 16 17 17 17 17 17 18 18 18

MP1.au 13 14 15 15 15 15 15 15 15 16 16 17 18 18 18 19 19 19 22 23 26

LYC.au 14 13 13 13 12 12 12 12 12 11 11 11 11 10 10 9 9 9 10 10 10

BVS.au 15 12 12 11 11 11 11 10 10 9 9 8 8 8 8 7 6 6 6 6 5

PPH.au 16 16 14 14 14 14 14 14 14 13 13 13 13 13 13 13 13 13 13 14 14

NEU.au 17 17 18 18 18 19 19 19 19 19 20 20 20 21 21 21 20 21 21 21 22

NCZ.au 18 19 19 19 19 18 18 18 18 18 19 19 22 23 23 23 25 28 32 34 35

PNV.au 19 18 17 17 17 16 16 16 16 15 15 15 15 15 15 15 15 15 16 16 15

NWH.au 20 20 21 22 24 24 29 31 36 36 38 41 43 45 45 54 56 62 65 74 79

SVW.au 21 21 20 20 20 20 20 20 20 20 21 21 19 22 22 22 21 20 20 20 21

IMD.au 22 22 22 21 21 21 21 21 21 22 22 22 21 20 20 20 18 18 19 19 19

NXT.au 23 23 23 23 22 22 22 23 23 23 24 24 24 24 26 26 25 28 30 30 28

Ranking Changes as a Chart

5

1

10

25

15

20

Ran

kin

g

Sell

BuyBuy

Sell

10 Positions

Week 2 Week 3 Week 4 Week 5Week 1

Rotational Trading

Is not “Normal” Trading

What is the System Trying to Do?

A means to:-

• Exploit the “Trending Anomaly”

• Catch and hold the BIG wins

• Focus on the Marlin, but keep the Minnow

• Not lose our Capital

Monthly Rotational Example( Concept only, Do Not Trade )

• Calculate a Trending Score -> All tradable shares All Ords.

• This example -> Trending “Score” = Weekly RSI

• Start of each month -> Rank shares and select 10 with the highest scores.

• Buy an equal value of each of these 10 shares. e.g. $100k trading capital; buy $10k’s worth of each share.

• End of the month -> Sell all shares. …… Repeat

Start of Month: Buy 10 Shares with the Best Trending Score

Month 1 start

Month 2 start Month 3 start

A2M price chart

Date of Scan: 4-Sep-17

A2M % Change chart 200 days

Date of Scan: 4-Sep-17

A2M % Change chart 20 days

Date of Scan: 4-Sep-17

Sep-2017

Oct-2017

Nov-2017

Dec-2017

Jan-2018

Feb-2018

Mar-2018

Apr-2018

May-2018

Jun-2018

Jul-2018

Aug-2018

Cumulative Change

Equity Curve from Jan-2011 ( Uncompounded )

Start Trading August 2016

- $27,000

Equity Curve updated to 11-Apr-2019

How Does This Work ?

No Stops

• Stops -> Burning in the Noise

• Stops -> Trading weekly / Stopped daily

• Don’t Stop It - > Swap It !

( For something better )

All In !!

Averaging

Trade 1

Trade 2

Trade 3

Trade 4

Trade 5

Trade 6

Trade 7

Trade 8

Trade 9

Trade 10

Exploiting

the

Statistical

Edge

Similar Styles of Trading

• Trading the ASX200 Index. The index has periodical rebalancing

• Trading a portfolio with periodical rebalancing

• Trade our own IndexHighest Long Term Momentum shares

Always In

• Capture Big UP moves

• Independent of TA Signals

Can you pick the winners ?

How Often to Rotate ?

• “sweet spot“ - Weekly rotation

• Monthly systems still work

The Whole Market Drops !

• What happens when the whole market drops, taking our “best 10” with it ?

Aug-2011 ( Bad day month at the office )

• Create a “System OFF” switch based on the underlaying index (All Ords XAO)

Turn the System OFF when the Whole Market goes Down

Weekly Chart of All Ords (XAO)

Turn System OFF ( Sell All)

MACD

Re-Start System

• A Blunt Instrument

• Oscillator

• Balance: Reactive vs Stable

• False Positives vs Big Drawdowns

Having your cake and eating it too

Trade a number of Systems differently

Summary

• Rotational Trading -> Always own shares with the highest long term momentum

• No stops -> Don’t Stop it; Swap it ! Swap poor performers for better performers

• Always in the market -> Catch the UP runs

• Safety in Numbers -> Manage risk with the averaging effect

• Long Term -> Weekly momentum; NOT daily noise

• Big market down turns -> Turn the system OFF with a market filter

• Very easy to trade !

Where to from here ?

• Amibroker

• Norgate data – Survivor bias free

• Back test

• Trade

Amibroker – ATAA Rotational Template

• Basic code and setup to get started

• The code works

• Not a tradable system !!!

• Has all the system components

• Adjust, change, modify, optimize

• Rotational is only one way to trend trade.

• There are many other methods

• However, All use

“finding long term trending shares”

Trend Trading Options

Level 1: Use the monthly scan lists on the website and use discretionary methods to trade.

Level 2: Run scans yourself and use discretionary or systematic methods to trade.

Level 3: Use Amibroker to design and test your own system. Trade that system.

Thankyou for your attention