Classic Strategy Creation

As with the standard strategy, the classic autoinvestor strategy is based upon a set of general portfolio preferences (portfolio composition) along with a collection of trading rules. As the name implies, the classic strategy is an older generation strategy which has been successfully used by many Stockworm customers. This strategy type has the following features (described in more detail in the sections which follow):

• General options - you can specify the number of stocks and cash reserve.
• Composition - you can specify whether you are interested in a long portfolio, short portfolio, or mix of longs and shorts.
• Open rules - You can use any of the available open rules to define the ideal stock holdings for your portfolio at any point in time.
• Close rules - You can choose when positions are to be closed, based upon stop gains or losses, minimum or maximum hold times, trading signals, and other close rules.

Please take a moment to review the differences between the classic and standard strategies, outlined here.

A sample classic strategy is shown below:

Creating a new strategy

New strategies can either be created by either modifying an existing strategy or by using the 'new classic strategy' quick link. The 'new classic strategy' quick link will create a long strategy with no buy or sell rules. You can then modify this strategy to suit your needs.

The sections which follow provide a description of all of the parameters which go into a strategy.

Portfolio composition

The portfolio composition options include:

• stock count - the desired number of stocks in your portfolio. The number of portfolio holdings will generally be equal to the stock count unless the autoinvestor cannot find stocks which pass all of the 'open' rules. If this is the case, then a cash position will be held until a suitable stock is found for the portfolio opening.
• composition - composition of your portfolio (all long, all short, a mix, or a bias toward long or short positions)
• cash reserve - the amount which you would like to keep as a baseline in the account (it will not be available for stock purchases). This amount can be specified either as a percentage of the portfolio value or as a flat dollar amount. A cash reserve of at least a few percent of your total portfolio value is highly recommended so that fluctuations in the price of a given stock after you have issued a buy order will not cause your portfolio to go into a negative balance.
• re-open options - sometimes the autoinvestor recommends that a holding be closed due to, e.g. a stop loss rule but then the same stock is still at the top of the 'open' rules and thus is recommended as an open. You are provided with three options to deal with this situation: (1) cancel both the open and the close; (2) cancel both the open and close unless the number of open and close shares differ by a percentage that you input; in this case a partial open or close will be recommended; (3) keep both the open and close recommendations (this increases the number of trades but will assure that your results strictly adhere to open and close rules).
• notes - notes allow you to provide a brief description of the strategy for later reference.
• short coverage ratio - when a short strategy is used, this option is exposed. The short coverage ratio dictates how much cash should be maintained when shorting a stock. A short coverage ratio of 0 means that the portfolio will hold the cash generated by the short sale in reserve for repurchasing the stock when closing the short sale. A short coverage ratio of 1 is more conservative -- the portfolio will hold the cash from the short sale plus and additional 100% of the portfolio position to guard against a cash shortfall caused by a rapid rise in price of a shorted stock. Short coverage ratios of less than zero mean that there will not necessarily be adequate cash to close the short position.

Trading rules

The trading rules are divided into open (buy/sell short) rules and close (sell/cover short) rules. If you have a mix of longs and shorts in your portfolio, then you can provide different rules for each position type.

The open trading rules for the classic strategy are all fully described in the rule sets chapter. The following table describes additional rules which are available for evaluating whether a given open position should be closed or held:

Adding, deleting, and reordering trading rules

To add a new trading rule, change the 'add trade rule' combo box to the desired rule and the new rule will be automatically added. To delete a trading rule, simply click on the delete button to the right of the rule.

The order of trading rules is very important. For example if a minimum holding time rule comes before a stop loss rule, then the stop loss will not be honored until after the holding time. For this reason, up and down buttons are provided so that you can quickly shift rules up and down within your strategy.

Saving custom strategies

Once you have a strategy that you would like to simulate or use to manage a portfolio, you should save the strategy. If you are customizing your strategy from a new strategy, a Stockworm strategy, or a Community strategy then the only menu item which will be available is "save as" because you cannot overwrite default strategies. Other strategies will offer you the "save", "save as", "rename", "delete", and "share" options so that you can modify or share previously saved strategies.

After you have saved a strategy, it will appear in the 'my strategies' section of the strategy list page.