Experiment № 1

Background

I have observed that trend following trading can create relative large capital gains over the long term. However, is it possible to generate an even larger, more stable amount of capital gains for less risk with a more active trading strategy based on trending fundamentals and trending stock prices?

As stated in my investment and trading plan, I may use up to 5 % of my total capital for research and development. This will be my first experiment.

Questions

  • At what rate is the capital gains generated?
  • Are the trading fees too large?
  • How large are the risks?

Method

  • Assets
    I will only trade domestic stocks.
  • Risk in the market
    I will always have 30 different stocks.
  • Entry
    Stock price must be above MA200.
    Price, earnings per share, revenue and margin must be trending upwards.
  • Exit
    I exit when the price increased 5 % or more.

Hypothesis

I believe a few positions will quickly show considerable capital gains. However most positions will need a lot of time to hit the target. I estimate that about 1 position per day will reach its target exit level. Resulting in a capital appreciation rate of about 1,5 % of total capital per month.

The 0,25 % trading fee will result in a round-trip cost of 0,5 %. It is a considerable large amount out of the targeted 5 % capital gains. To generate a satisfying large amount of capital, the number of required trades will be enormous.