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Using a single (although not basic) trading rule, the current trading strategy gained more than 27% per year for the last 10 years. The strategy consists of buying falling stocks or the top five stocks with the highest decrease in price compared to the last five trading days moving average.
The strategy formula uses the "comp" (composite) function to calculate the rank of each stock for the decrease formula, it then takes the top 5 stocks and buys them (in case there are still free positions in the portfolio - The maximum number of position in the portfolio is 5). The composite function ignores falling stocks whose close price is less than 2 dollars. There are no sell rules in the trading system; however, I have added a profit stop that closes a position when its return exceeds 10%.
This Buy Falling Stocks strategy was tested on U.S. Stocks and it generated 91 trades (89% of them are winners). The strategy Sharpe ratio is 0.55 and the maximum drawdown is -52% (This is an aggressive strategy). The backtest shows that during the 10 years of simulation, 9 out of 10 are showing positive returns where the best year return occurred in 2009 and it showed a positive gain of 87%, while the worst year occurred in 2002; during this year the portfolio lost -28%.
The trading system was not optimized and I am sure you can use it as a template to create much more profitable strategies. You can do this by testing additional buy and sell rules, optimizing stop settings and adding one or several money management strategies.
