If the back-test reveals high turnover, several adjustments can be made to reduce trading frequency:
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- Widen Buy-Sell Thresholds: For example, instead of selling stocks as soon as they fall out of the top 5%, hold them until they drop below the top 10%. This simple adjustment can significantly reduce turnover without sacrificing much performance.
- Relax Screener Thresholds: If the screener is set to only buy stocks with an A+ ROE, it may be beneficial to relax this to A- for the sake of long-term holding.
These changes should reduce transaction costs and improve the tax efficiency of the strategy, all while maintaining the core logic of the system.
Initial Selection of Variables
Decile-Based Return Analysis for Predictive Power
Combining Variables for Multi-Factor Analysis
Stock Selection Based on Ranking System
Incorporation of Additional Buy-Sell Rules
Determining Buy-Sell Frequency
Rebalancing and Trim Frequency
Setting Trimming Boundaries
Determining the Number of Stocks in the Strategy
Back-Testing the Strategy
Frequency Adjustment for Portfolio Trimming and Buy-Sell List
Portfolio Size Adjustment
Stress Testing for Robustness
