Gradual entry and exit - a composite strategy

Idea

Gradually open positions in the stock as its price drops from the all-time-high and close the positions as the stock price advances.

The composite strategy combines individual simple buy-dip strategies operating on portions of the capital.

Example   Test it!

Strategy

Gradually buy Facebook (FB) as the stock price drops and close the positions as the stock recovers. Invest for the period of 3 years.

Follow the following schedule for position open and close:

  • enter on - 5% from the all-time-high, exit on 10% profit
  • enter on -10% from the all-time-high, exit on 10% profit
  • enter on -15% from the all-time-high, exit on 10% profit
  • enter on -25% from the all-time-high, exit on 15% profit
  • enter on -35% from the all-time-high, exit on 20% profit

Simulation on a single period

Note: We quote the results for just the most recent 3-year period from 2016-02-25 to 2019-02-24. Review the simulation for other periods.

Key indicator Value Description
Annualized return 7.61% Compound annual return (CAGR) over the period
Max drawdown -5.31% Maximum loss relative to the initial value experienced over the period

Statistical simulation

Note: We simulate over all 3-year periods since Facebook's IPO in 2012.

Key indicator Value Description
Percentile 20% of annual return 14.94% 80% of the periods produced this annualized return (CAGR) or better
Percentile 20% of max drawdown -8.69% 80% of the periods experienced this max draw-down (relative to the initial investment) or better