No. of Recommendations: 4
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:
1) I would not take ChatGPT as an authoritative source. Just maybe a pointer to something to check.
2) Have you backtested this? How?
3) Does ADV# mean "average dollar volume over the last # trading days"?
4) Where can you get ADV10 & ADV90? Daily.
5) I guess that you could do it yourself by keeping the daily data on every potential stock, so that you'd have this information by the time it (might) become one of the topN picks. Doable with Nas100 stocks, difficult on S&P500 stocks.
6) 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?
7) Hmmmm. Do you or should you bypass buying a new topN stock that has this declining ADV10/ADV90?
8) At least for this monthly screen, the nominal holding period is one month, so there is no reason to look at the 3 or 6 month difference in returns. In my backtests on GTR1, 2 month period is 10% less than 1 month. 3 month is quite a bit less.
9) "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.
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?
11) My big question is "Is this actionable?"
