Over the weekend, I have been revising a number of my R2G model portfolios to upgrade the level of liquidity required.
For a long time, I have used my:
mktcap > 50
AvgDailyTot(20) > 200000
close(0) > 1
universe(nootc)
These requirements come about from personal experience of trading - it does not seem worth trying to go under this most of the time. I have read the concerns about liquidity from others on the forums, and I tend to agree. For a system with multiple subscribers, particularly one that has a higher turnover, more liquidity is likely to deliver better real-money results. I have created a new universe:
mktcap > 100
AvgDailyTot(20) > 400000
close(0) > 1.5
universe(nootc)
As you can see, both the market cap and volume requirements have been doubled. I think market cap should be given more emphasis as far as liquidity is concerned, volume can easily spike, and the standard deviation for low-market cap stocks is much higher.
I have revised a number of R2G models to move them to this new liquidity universe:
Keating’s 20 stk high turnover
Keating’s Extreme 10
Keating’s Extreme 5
In each case, I have used improvements in ranking logic to “pay” for this upgrade, such that the performance is the same as, or slightly better than previously.
Because of the way R2G revisions work, the liquidity stats will still be based on the old model. However, my belief is that traders will find the liquidity is no substantially better than previously indicated, and I hope and expect that as a result of this improvement, the real-world results are going to be improved.
Good luck with your trading!
Oliver