No. of Recommendations: 2
I tested on ChatGPT today to see if getting out of a stock when its [dollar] volume falls compared to its norm, and you can add 1.4% CAGR by doing so when
ADV10 / ADV90 < 0.50
A few questions & comments":
I fed Chatgpt the price and volume history of all Nasdaq100 members that I already gave the group, so that was in fact a backtest, better than gtr since we can actually look at each stock's identity which gtr did not allow.
Yes ADV# mean "average dollar volume over the last # trading days"
Where can you get ADV10 & ADV90? Daily. I paid Norgate for the data.
Yahoo has average trading volumes. If you only owned 5 stocks it would not be that burdensome to keep track.
What do you do when you have sold a stock early but it is still in the topN picks on the next portfolio trading date? You cannot get in and get out simultaneously, so what do you do?
I pretended you re-purchased it the next month if it were still in your top 5 list then (82% of the time it isn't going to be).
Do you or should you bypass buying a new topN stock that has this declining ADV10/ADV90?
o for example:
Rank Nasdaq-100 stocks by 9-month momentum.
Start from rank #1.
If rank #1 has bad dollar volume, skip it.
Check rank #2, #3, etc.
Continue until five acceptable stocks are selected.
The key result was:
ADV10 / ADV90 < 0.50, which helped in the daily mid-month sell test, did not help in monthly-skip form.
It reduced CAGR versus baseline.
The only monthly-skip variant that improved was:
skip if ADV10 / ADV30 < 0.60
But you could use that .6 standarad.
"By your normal next trade date: 65% were no longer even top 10." So is this even a problem that we need to solve? On average we'd only be selling a stock 2 weeks early."
It would take extra work for 1.4% added CAGR. Probably not worth the effort for me but for people doing automated trading it would be.
10) How often does it happen, that a top 10 stock that you hold has a sharp dropoff in daily dollar volume before the next normal trading date?
Results:
Starting rank when held Frequency of early-sale trigger before next rebalance
#1 stock 6.8%
Top 5 holdings overall 11.9%
Top 10 holdings overall 14.8%
So best ranked stocks it is not very common.
My big question is "Is this actionable?"
Depends on how greedy you are and if you can automate or want to check daily. Over time an added 1.4% compounds to a big number; Wall Street heads have rolled for less than 1.4%
