A Long-Term Strategy that Trades Once a Month
Simple is best.
You can’t get much simpler than a strategy that trades just once a month.
A number of years ago I introduced Chartist members to a monthly US Momentum strategy. Then in December 2020, we added the ASX Momentum strategy to our portfolio mix.
So how does a monthly strategy work? Let’s step it out using the ASX Momentum as an example.
Firstly, it’s a systematic strategy meaning there is no human emotion involved. We tell you which stocks to buy, how many to buy and when to sell.
We only trade the top 100 blue-chip stocks on the ASX. The top 100 was chosen as many Super Funds (retirement funds) allow investors to trade in a limited market. The top 100 stocks being the safe-ground.
What is Momentum?
Price persistence. Momentum is the ability of a stock price to continue moving in one direction. In our case, we want the stock price to continue rising.
A price in motion tends to stay in motion.
The strategy also measures the trend strength of the broader market.
When both the stock price and the broader market are displaying momentum then we buy the stock.
If the broader market displays a negative or downward trend then the strategy reverts to cash.
This is known as ‘dual momentum’ and is the cornerstone of all our trend and momentum systems.
What’s the Plan?
The plan is to divide our capital into 5 equal parts.
We then buy the 5 stocks displaying the strongest momentum.
On the last trading day of each month, we again scan the market for the strongest performers. The following trading day we buy or sell our new positions.