Friday, December 31, 2010

The ADX Portfolio Strategy

For the new year, I have decided to record a mock technical trading strategy using the ADX. The ADX will be based on a 14d time period. The initial investment will be $10,000.

The criteria are below and the criteria are malleable if we don't stray to far from the core strategy, but rather tweak the strategy throughout the year in order to maximize the market opportunities The market changes, and sometimes the elements of the strategy would have to be evaluated.The ADX changes would be correlated to what the market is doing.  So, for instance, if you start seeing something emerge in the market that makes you cautious and you can identify and explain why you might want to be cautious, you can do a reciprocal strategy being short instead.  

Rules for the ADX Portfolio Strategy:

Only 4 positions or less at a time: this makes it very easy to get long, short, or neutral if the market changes.

Entry
  1. ADX is rising - between 20-27
  2. +DI is above 20
  3. -DI is below 20

Exit
  1. After the ADX closes with a 35, you sell the position on the 5th day it closes at 35 consecutively. (If it closes above for 3 days, then dips below for 2, and back up for 2 more up days, you now have to wait 3 more days for the signal to confirm)
  2. A 40% gain closes out the position.
  3. Stock losses 15% closes out position.
  4. DI - crosses above 20 you sell after 5th consecutive day close
  5. ADX indicator moves below 20 for a period of 5 days.

This is a simple premise but one thing to note:  instead of using closing prices, we trigger stocks on a intraday basis respective to its signal and rules.  It will be actively managed, not automated.


There is another note: transaction costs will be accounted for after the position closes.

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