Buying Equity Pullbacks Within a Moving Average Uptrend

Summary

This article presents a long-only stock strategy that buys pullbacks while short- and longer-term moving averages remain ordered upward. Its simulated rules define an uptrend as the 5-, 10-, 20-, and 60-day averages descending in value, and define a pullback as an opening price below the 10-day average. The example portfolio holds 20 stocks, buys at the open, and exits when the opening price differs from the entry price by more than 10% in either direction. It outlines parameter choices, daily rebalancing, and use of adjusted Chinese stock data.

A simulation from January 2 to February 28, 2014 reports a return of 11.41%, above the contemporaneous CSI 300, but the short test does not establish general performance. The article acknowledges that its price-only premise may fail over longer horizons and that the simulation omits new listings, suspensions, and special-treatment stocks. It also notes the risk of fitting parameters to historical data and the computational burden of processing thousands of stocks.

Key ideas

• The strategy defines an uptrend by an ordered stack of 5-, 10-, 20-, and 60-day moving averages.
• A pullback entry occurs when the opening price is below the 10-day average.
• The example simulation holds 20 stocks and applies a 10% gain-or-loss exit threshold.
• A two-month 2014 simulation reports an 11.41% return, but its short period limits the evidence.
• The method excludes several special stock conditions and relies only on price behavior.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.