How to trade more often.

Research
1

Hi there !!

Just a weird question.

I notice that all my sims trade very rarely, then I hold stocks for long periods, despite I rebalance each month. 200 days or so…

I would like to trade more often.

Then, my question is:

Are there fundamental factors that lead to trade more often?

Those factors (if exist) can lead to a better performance?

Thanks!!!

2

If you are getting results that you are happy with, why would you like to trade more often?

There are taxes and costs to trading. I actually like to extend the hold period without sacrificing returns

3

Yes, of course, you right.

It’s just and experiment, I want to create a sim that trades often based on fundamentals, not on technical rules, but I don’t really know how to approach it.

4

James,

The more often your ranks change, the higher the turnover.

With only fundamental factors, say P/E, P/B, P/FCF, etc, the denominator (E/B/FCF) only changes once per quarter when the firm reports. The Price numerator varies daily, but to what extent depends on the stock; smaller stocks prices will likely vary much more than say mature large caps.

Adding more technical factors that change almost daily will generally increase turnover, volume, momentum, etc.

So to sum up, smaller stocks with technical factors = high turnover; large conservative/defensive stocks with fundamental factors = lower turnover

As others have pointed out, higher turnover also means higher frictional costs.

There is a benefit to higher turnover for testing purposes however. With higher turnover you are increasing your sample size, so more stocks are being tested in your strategy and can paint a more accurate picture of how the strategy has performed. For low turnover sims, using rolling tests is a great idea for this purpose, instead of just relying on a single period sim with a limited number of stocks.

Cheers,
Ryan

5

Thanks for your insight Ryan, helped me clarify that theme a little more. :slight_smile:

6

No problem James. I had a similar question on T/O not too long ago as well.

Let me know how it works out for you.

Cheers,
Ryan