Why a Dual Moving Average Strategy Rebalances Existing Holdings

Summary

This explanation clarifies why a stock strategy may send orders for shares it already owns. It separates current holdings into positions with sell signals, new buy candidates, and existing positions that still qualify to be held. The strategy sells the first group, adds proceeds to its available buying cash under an assumed morning execution schedule, then assigns equal target values across new candidates and retained holdings.

The key point is that an order targeting a value can increase or decrease an existing position; it is used to bring each qualifying holding to its intended portfolio weight, rather than necessarily to buy more. The example describes the logic, but gives no performance evidence. Its cash handling depends on the timing of sales and purchases, and the approach assumes equal weighting is desired. Practical results also depend on tradability, execution, and how the trading system processes orders.

Key ideas

• Existing positions without sell signals remain eligible for the target portfolio.
• New qualifying stocks and retained holdings share the available capital equally in this example.
• A target-value order can resize an existing holding as well as initiate a new one.
• The cash calculation depends on whether sale proceeds are available before the buy orders.

Tags

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