How to Rebalance Simulated Strategies the same way as Screens

Research
1

Rebalancing using the Screens approach makes sense to me. That is, run your screen (generates a Buy Group of stocks), sell the stocks that are not in the Buy Group, and buy equally weighted the Buy Group stocks. To get equally weighted, it requires additional buy/sell with < 100% Turnover for the period.

I implemented this approach when trading with Folio Investing and achieved success for years. I uploaded the stock tickers to Folio and used their simple Trading tools (about 7 clicks to submit the order). I am now recreating it with a Live Strategy to automate the trading with either Tradier or IBKR. With prevalent no commissions or annual fees, trade friction costs (e.g., annual fees, commissions, slippage) are negligible greatly reducing the cost of high turnover portfolios.

While the Simulated rules allow a more complete model of trading friction costs, they seem designed for when these costs were higher in our industry. What is less clear (to me) is how to execute stock screen rebalancing when using separate simulated strategies’ Buy and Sell rules.

To simulate Screen rebalancing in a Simulated Strategy, how do I instruct the Simulated Sell rules to sell any equity not in my new Buy group, buy the new stocks in the Buy group, and rebalance existing stocks to equal weighting? I am looking for a solution that works with a variable # of stocks across rebalancing periods. That is, # of stocks may differ across rebalancing periods.

What I have looked at (P123 Live Strategies and ‘How to Build a Stock Strategy’) so far:

  • RankPos does not work well when the # of stocks varies
  • Rank is used in some Live Strategies but does not seem to apply to my scenario
  • Mktcap is used in some Live Strategies but does not seem to apply to my scenario

Thank you in advance for your help.

2

Take a look at https://www.portfolio123.com/performance.jsp?portid=1648905 . . .

The secrets are: use formula-weight rebalancing, put the number of stocks extremely high, check off allow immediate buyback, use 1 as your formula (equal weight), and use 1 as your sell rule (which means true, or sell everything).

3

Thank you for your thorough response and example. These settings seem to work for me as my Screen and Simulated Strategy results matched much more closely.

Many brokers let you sell equities and immediately use those proceeds (a form of ‘margin’ for an IRA) to buy new equities; this gets around waiting for Trade Day + 2-days (T+2) to settle. To use the proceeds immediately, you have to steer clear of the Free Riding and Regulation T Rules which prevent you from selling, buying, and selling with unsettled funds within T+2.

Does anyone know if selling stock AAA and then buying back a different amount of stock AAA within the T+2 period is considered Free Riding?