MA21 etoro Factsheet

Background:

Investors being active since about 2011 have experienced more or less only rising prices on most maket segments. But this phase will not last for ever. I remember maket phases between 1999 and 2011 with price drops of 50% to 80% at the stock markets. With my strategy I would like to participate in rising makets but I would like to avoid those price drops. Therefore I decided to go for a trend following strategy that focuses on upward trending markets but once the stocks/markets come to the end of rising prices or start falling I would like to close the positions. I found this strategy on the German magazine "Focus Money" and developed it further for my own trading.

Strategy Signals for Entry and Exit

The Strategy's purpose is to invest existing capital in stocks, Fonds or ETFs respectively. In my etoro portfolio I only invest in stocks. This is a long term strategy for capital investments for a time horizon of 3 years or more. Entry and exit signals are derived from the Simple Moving Average indicator (SMA) on the basis of 21 periods on the monthly chart.

Important: As we use the monthly chart, we only need to take care of the investment portfolio once a month (at the end of each month after the market for this month is closed).

The Moving Average indicator used can be calculated at the end of each months either with Excel or, and this is much easier, can be used on any charting software. I use Tradingview for this purpose.

• Does a stock out of my watchlist meet the entry criteria - Crossing the monthly SMA21 upwards? If so, I buy this stock for a fix amount (currently 1000$) with a TP of 10x of the entry quote.
• Does one of the stocks in my portfolio crosses the monthly SMA21 downwards? If so, I close the entire position.

Practical Aspects of this Strategy

• Which instruments can be traded?
  For a very long time horizon (e.g. 10 years) I would use a dozen index ETFs reflecting a certain market segment each, such as DAX, Dow Jones, Nasdaq100, Nikkei225, Emergency Markets, Gold, Oil, Commodities. The strategy would then ensure, that you are always invested in those markets which are trending upwards.
  In my case with a medium term time horizon and experience in stock picking I decided to go for stocks from Germany, Europe an North Amerika. It is important to select those stocks that have growth potetial and reflect many regions and branches, in order to achieve a maximum of diversification.
  
  
• How much trading instruments / stocks?
  This strategy can be traded with one instrument (e.g. a stock) only. But in this case, there would be no diversification. The total profit only depends on the development of one stock and it could happen that for months or even years you are not invested at all, because there is no uptrend. If one decides to trade the strategy with one instrument only, I would recommend a wide-spread stock ETF.
  It is much better to trade more than one instruments in the portfolio. How many instruments depends on the total size of the available capital and the individually wanted diversification.
  I recommend to have between 20 and 40 stocks in the portfolio.
  
  Example: If I have the total capital of 20.000 $ I would suggest to go for maximal 20 positions/stocks in the portfolio, each with a buy price of 1.000 $. If the portfolio grows after some months, then either the number of stocks in the portfolio can be increased or alternatively if one want to stick with 20 positions the buy price can be increased from 1.000 $ to any fix value greater than 1.000 §.
  
  
• Additional rule: A stock in the portfolio reaching a quote 10 times higher than the buy price (tenbagger) will be immediately closed (Take Profit). In few cases this can be achieved and brings the portfolio significantly forward.