Managed Shares Trading Rules

(See the prior version of this rule set here.)

The goal of this rule set is to create a highly diversified mid-risk portfolio of exchange-traded funds, managed daily  according to crossovers in the Directional Movement Indicator (DMI) technical analysis tool that signals trend changes. A buy signal is generated when the DMI+ (uptrending) crosses above the DMI- (downtrending). A sell signal is when the DMI- crosses below the DMI+.  Investopedia gives an explanation of the DMI system, here.

Method

My holdings consist of a portfolio of five exchange-traded funds picked from a pool of funds. For signaling, I use the DMI applied to a daily chart.

I use a large pool of about 90 exchange traded funds, including U.S. general index funds, sector funds, international global and country-specific funds, and a few futures-oriented funds in metals and agriculture.

Each trading day, I do the following tasks:

Update the pool with new DMI trend readings (which are binary: Above the signal line or at or below the signal line).

  1. Compare with the final trend signal of the day.
  2. Exit any holdings whose signals have changed from buy to sell.
  3. Bring the holdings count up to five positions by selecting according to these criteria:
    1. The DMI is showing a buy signal.
    2. The most recent date that the signal for each symbol switched from sell to buy is preferred over earlier signal dates. If the number of symbols on the most recent signal date is insufficient fill out the portfolio, use the next most recent date. For any selection date where there’s a choice of symbols to use, make each selection using a random number.
    3. Each fund in the portfolio represents a unique sector compared to the others.

More briefly, the selection criteria for my five positions:

1) Buy signal. 2) Newest trend. 3) Unique sector.

 

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