How The Momentum Strategy Buys Shares
As with the Value & Growth strategy, the Momentum Strategy’s Strategy Terms are used to create a list of shares to buy and to indicate to the Trading Rules, when shares should be bought and sold. The first stage of the buying decision is the Momentum Opportunities security list term, which selects all those securities in the trading list that don’t currently have an open position and whose long term trend is growing at an annual rate > 20% (Has Open Position is defined in the Spec’s Shared Terms):
‘Target Channel Growth Rate’ = 20%
‘Has Open Position’ = a condition that is true if the evaluated security’s total quantity in its current position is greater than 0
‘Momentum Opportunities’ = the ‘Momentum’ strategy’s list, after selecting those securities whose ‘Has Open Position’ term is false, AND whose % growth/year of the current long channel as of today, is greater than or equal to ‘Target Channel Growth Rate’
The Momentum Buy List security list term then ranks the shares in the Momentum Opportunities list based on the growth rate of the long term trend. It picks the top fastest growing shares, selecting just as many as can be afforded, as determined by the Required Number Of Positions term. Required Number Of Positions is defined in the Shared Terms tab and was described in How The Value & Growth Strategy Screens For Opportunities, where it is used for the same purpose:
‘Required Number Of Positions’ = the rounded value of (the cash available (£), DIVIDED by the nominal trade-size)
‘Momentum Buy List’ = the top ‘Required Number Of Positions’ (£) securities (in descending order of each listed security’s % growth/day of the current long channel as of today) in the ‘Momentum Opportunities’ security list
The Momentum Buy Signalled condition term (not to be confused with the trade-signal shown in a live session when a trading rule has triggered) is then set true for each share in the Momentum Buy List:
- Whose typical price is at least 5% above its 250 trading day (~1 calendar year) simple moving average. Using a margin like this avoids the many false positives that can occur when the price bounces around the average
- And the simple moving average of its price has risen over the last 5 days
- And it has reversed out of a trough on the low side of the long term price-channel (the Lower Long Reversal term which tests this was described in the Value & Growth Strategy’s Trading Rules)
The relevant definitions are as follows (Lower Long Reversal and Short Channel Rising are both defined in Shared Terms):
‘Slow SMA’ = the simple moving average for the evaluated share’s typical price (P), over the last 250 days
‘Lower Long Reversal’ = a condition that is true if the evaluated security’s lowest low price, up to today, has previously been in or below the long channel’s Lower Turn-Band (outer), AND the ‘Short Channel Rising’ term is true
‘Short Channel Rising’ = a condition that is true if the evaluated security’s short channel’s trend today, is rising
‘Momentum Buy Signalled’ = a condition that is true if the ‘In Buy List’ term is true, AND the ‘Trend Is Up’ term is true, AND the ‘Lower Long Reversal’ term is true; where:
- ‘In Buy List’ = a condition that is true if the evaluated security is in the ‘Momentum Buy List’ security list
- ‘Trend Is Up’ = a condition that is true if the ‘Price Above SMA’ term is true, AND the ‘SMA Rising’ term is true
- ‘Price Above SMA’ = a condition that is true if the evaluated security’s typical price (P) is greater than or equal to ‘Slow SMA’, PLUS 5%
- ‘SMA Rising’ = a condition that is true if the % change, over the last 5 days (ending today), in the value of: ”Slow SMA’ (P)’ is greater than 0%
Finally, when the Momentum Buy Signalled term is set true, then the Buy Long Momentum trading rule is triggered and the trade is made (Test sessions) or a trade-signal is raised (Live sessions):
‘Buy Long Momentum’ trading-rule signals ‘Open Position’ in the evaluated security, for the nominal trade-size, when: the ‘Momentum Buy Signalled’ term is true
