AlphaSignal533

Long–Short Trend Strategy

1. Portfolio Universe

We selected these 10 stocks for their strong sector representation, high liquidity, and market relevance. Each stock comes from a different major industry, ensuring diversification and reducing sector-specific risk. As large-cap, actively traded companies, they offer reliable data and efficient execution,.

• AAPL – Information Electronics
• MSFT – Information Technology
• JPM – Financial
• XOM – Energy
• JNJ – Healthcare
• PG – Consumer Staples
• NVDA – Semiconductors
• CAT – Industrial
• HD – Retail
• AMZN – Communication Services

2. Rebalancing Frequency

The portfolio is rebalanced monthly. At each rebalancing period, the latest technical data is used to recalculate indicator scores and update the portfolio positions.

3. Technical Indicator Scoring System

Each stock is scored (0–5 per indicator) for both long and short setups based on:

3.1 EMA Deviation (Delta) Calculation

The EMA deviation measures how far the current price is from its 20-day Exponential Moving Average (EMA). It is calculated as:

Δ = 100% * (Close - EMA_20) / EMA_20

• Long Scores (price above EMA):
  • Δ > +5%: 5 points
  • Δ between +3% and +5%: 4 points
  • Δ between +1% and +3%: 3 points
  • Δ between 0% and +1%: 2 points
  • Otherwise: 0 points
• Short Scores (price below EMA):
  • Δ < –5%: 5 points
  • Δ between –5% and –3%: 4 points
  • Δ between –3% and –1%: 3 points
  • Δ between –1% and 0%: 2 points
  • Otherwise: 0 points

3.2 MACD (Moving Average Convergence Divergence)

• Calculation: MACD difference = (MACD line – Signal line)
• Long Scores:
  • MACD_diff ≥ +1.5: 5 points
  • MACD_diff in [1.0, 1.5): 4 points
  • MACD_diff in [0.5, 1.0): 3 points
  • MACD_diff in [0.1, 0.5): 2 points
  • Otherwise: 0 points
• Short Scores:
  • MACD_diff ≤ –1.5: 5 points
  • MACD_diff in (–1.5, –1.0]: 4 points
  • MACD_diff in (–1.0, –0.5]: 3 points
  • MACD_diff in (–0.5, –0.1]: 2 points
  • Otherwise: 0 points

3.3 ADX (Average Directional Index)

• Common for both directions:
  • ADX ≥ 40: 5 points
  • ADX between 30 and 40: 4 points
  • ADX between 25 and 30: 3 points
  • ADX between 20 and 25: 2 points
  • ADX < 20: 0 points

3.4 ATR (Average True Range)

• Calculation: Use the ratio of the current ATR to the 20-day ATR average.
• Common for both directions:
  • ATR Ratio between 0.8 and 1.2: 5 points
  • ATR Ratio between 0.6–0.8 or 1.2–1.5: 4 points
  • ATR Ratio between 0.4–0.6 or 1.5–1.8: 3 points
  • ATR Ratio between 0.2–0.4 or 1.8–2.0: 2 points
  • ATR Ratio < 0.2 or > 2.0: 0 points

4. Determining Trade Direction & Weight Allocation

For each stock:

Total_Long = EMA_long + MACD_long + ADX_score + ATR_score
Total_Short = EMA_short + MACD_short + ADX_score + ATR_score

The direction is chosen by comparing the two totals. The absolute total score is then normalized among stocks in that category (long or short) to determine the weight. Long positions have positive weights while short positions have negative weights.

5. Risk Management Rules

• Individual stock weight is capped at 20% (absolute value).
  
• Overall short exposure is limited to 40% of the portfolio.
  
• Stop-Loss: Exit a position if it falls more than 10% from the entry price.
  
• Take-Profit: Close a position if it gains more than 20% from the entry price.