Weekly Momentum: Portfolio Protection in Falling Market.
It is always important to have a proper plan when market is going against of us. In Momentum Investing it’s even more important to have a solid exit plan in place, because Momentum Stock’s fall is way more fast and furious compared to the Index.
So, the question is what are the possible solution in the momentum investing to protect the wealth in the falling market.
Today we will discuss about the exiting the portfolio based on Nifty50 performance.
Let us see the the backtest data of Momentum Investing Performed in last 20yrs on Nifty LargeMidcap 250 index.
As you can see in last 20yrs market has given a Max Drawdown of 48.6%, which is huge. With this Drawdown it’s very difficult the maintain proper psychology.
During Current Market and COVID19 fall, strategy has given maximum DD.
This is the time when we should think of some ways to reduce this Drawdown. We have back tested Nifty50 based exit criteria in Quantinuous and performance has improved significantly. You can also think of other exit conditions as well.
Condition: When NIFTY 1D Close > NIFTY EMA100, then only enter with the momentum trade, else exit the portfolio.
Let us see how it has improved the overall strategy Performance.
Max Drawdown has reduced from 48.6% to 19.14% which is a Significant Performance Improvement.
Also we have not compromised on the return perspective. We have still secured 30% CAGR return for the average of last 20yrs.
Let us see from Nifty50 Data.
NIFTY has gone below EMA100 from Nov24. So our momentum portfolio has not given any entry signal from Nov’24 onwards. This has helped to stay in cash for the major market fall.
Return Improvement:
During the time when we are in cash, we can even consider placing the cash in LIQUIDBEES, which will generate some more return. Also we can consider placing some amount in other non-correlated asset (like GOLDBEES or USDINR) after performing backtest.
Hope this article will help to improve your Momentum Investing journey. Also you share you own ideas or strategies which can take the Draw Down even further.
Use https://www.quantinuous.net/ to do your Momentum Backtest.
Thanks for spending your time!!
Note: Quantinuous.net is not a investment advisory service. Consider the above article as educational materials. Also do your own back test and research before following any strategy.