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My Momentum Test Portfolios

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Testing My Strategy
I finished thinking about my momentum strategy and wanted to execute it on two test portfolios for a month or two to see what kind of turnover I’ll see and variation in returns I can get.

Momentum Portfolio #1
My first test portfolio starts off with about $10,000 to be invested into 10 positions following the S&P 500 and calculating the 7-month momentum. I would find the momentum by subtracting the close price 7-months ago from the current price and dividing that by the current price. This normalizes the 7-month change in price so that companies that have expensive share prices do not overlook the penny stocks.

After calculating that for all 500 companies in the S&P 500, I sorted them with the largest change in 7-months. I selected the top ten. I did this before the market opened on 12/31, resulting in the following stocks with the following allotment:

MTUM 10k - 1I have a big question in my head right now about when to sell these positions. Do I sell them if they falter relative to the S&P 500? Or did I sell them if they loose a percentage of their momentum? For this test portfolio, I will sell if they loose 25% of their bought momentum.

I plan on checking this portfolio very actively over the next couple of weeks as I do expect high turnover.

Momentum Portfolio #2
In this portfolio, I am replicating real life by starting out with just about $1000. This isn’t much and the $7 transaction fees per trade will definitely have a larger impact on my returns. Because of this, I am starting out with just the top 3 of the S&P 500 with a 7-month momentum calculation. I plan on selling when momentum drops by 25% from time I bought. See below of the starting data:

MTUM 1k - 1Now this one is definitely more risky, since I have only three stocks I that need to perform.  I would like to give myself the freedom to change the selling criteria for both portfolios before I make my first selling decision.  I do not know if I should put in a drop 25% and lower than the top 20 in the S&P 500, or similar.  I would fear selling a position and it being having relative strength over the rest of the S&P 500.  I guess, this is why I have these two test portfolios.

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  1. Pingback: Momentum Investing Portfolio Update 1 | My Financial Wisdom

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