Simple Momentum

A practical guide to ETF trading systems

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AFJ Garner
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Simple Momentum

Post by AFJ Garner »

Trend Following System

Those who do not own Trading Blox can test this system using a free on-line demonstration. Go to and enter “ETFDemo” as the license name and key.

This is a no frills, utterly simple Momentum system. No bells, no whistles. You simply re-invest in the top X rated stocks on each rebalance date. Stocks are rated in accordance with their returns over the look back period.

Importantly however the money management differs: here you have the opportunity to choose how much to invest and how much to leave in cash. If any. You can invest in the top 5 rated stocks and place 5% in each. Or the top 20 rated stocks and invest 2% in each. And so on.

Roll Period. This system allows you to choose a roll period in calendar days. The default is set to 30. This means that the portfolio will be rebalanced every 30 calendar days. Or 20, 60, 90 - whatever you set as the parameter.

Momentum Lookback. While the default is set to 30 trading days you should experiment with your own parameters. Each instrument's return is calculated over the chosen look back period and then ranked best to worst. The best performing stock is ranked 1.

Ranking Limit. If the portfolio contains 10 instruments and Ranking Limit is set to 5, on each re-allocation day the portfolio will be re-adjusted to invest in the 5 best performing stocks.

Allocation. This is the percentage of the portfolio which will be invested in a single stock at the beginning of each period. If your ranking limit is set to 5 and your Allocation set to 5 then each of the 5 top ranked stocks will be allocated 5% of total equity, giving total investment of 25%. The remaining 75% of the portfolio will earn interest as cash.

This is an ultra simple trend following system. Try it out. Use different portfolios, parameters and time frames.

I give no investment advice and make no recommendation. Let me know if I have got something wrong.
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