Using this strategy you periodically (e.g. the first day of the month/quarter/year) rebalance your portfolio, i.e. you buy and sell stocks in your portfolio so that you restore the original allocations. For the General Strategy this means that you have an equal amount of capital in each stock (e.g. 20%, if your portfolio consists of 5 stocks). The problem with this strategy is that you keep selling the stock that does best and keep buying the stock that does worst in your portfolio while loosing additional money in trading fees. My simulation results show that rebalancing more than once a year degrades the long-term performance. It also shows that rebalancing is not needed if you trade on margin (see a discussion about margin trading below).

Using this strategy you keep a certain percentage of your portfolio in cash and you periodically rebalance your portfolio to maintain this percentage. A popular percentage is 20%. The rationale here is to have some money in reserve so that when the market goes down you have the money to buy stocks at a lower price and when the market goes up you sell stocks to maintain your cash percentage and thus preserve some of your gains. My simulation results show that a cash position degrades the long-term performance.

Using this strategy you sell a stock if it goes down more than a certain percentage below the price paid when you bought it or more than a certain percentage below its high since you bought it. Books on this subject have varied opinions about the percentage you should use. I have read some that say 10% and others that say 30%. My simulation results show that stop-loss rules degrade the long-term performance.

Using this strategy you borrow money to buy a larger amount of stocks. The amount of money borrowed versus the amount of capital I call the margin ratio. For example, if you start with $10,000 and buy $18,000 worth of stock than you borrowed $8,000 and your margin ratio is 0.8. Assume that the value of your stock increases to $20,000. In this case your margin ratio drops to 0.67 (your capital is $20,000-$8,000=$12,000 so your margin ratio is $8,000/$12,000=0.67). The general idea is to keep the margin ratio within a certain range, say 0.2 (i.e. keep the margin ratio between 0.7 and 0.9). When the stocks in the portfolio rise and capital increases, the margin ratio (amount borrowed divided by capital) goes down. Once it goes below the lower limit (0.7 in this case) you buy more stock on margin to bring the margin ratio back to 0.8 (the halfway point of the targeted range). Conversely, when the stocks in the portfolio go down and capital decreases, the margin ratio (amount borrowed divided by capital) goes up. Once it goes above the upper limit (0.9 in this case) you sell stock to bring the margin ratio back to 0.8. My simulation results, which include the interest paid on the margin amount, show that this strategy is very successful.

Using this strategy you short the NASDAQ 100 to buy a larger amount of stocks. This means that you sell the NASDAQ 100 tracking stock (ticker QQQQ) and own a negative number of shares in your account (i.e. you owe your broker shares instead of owning them). This strategy is similar to the margin strategy but shorts the market to obtain additional cpital instead of borrowing it. The amount of money shorted versus the amount of capital I call the hedging ratio. For example, if you start with $10,000 and short $8,000 worth of stock then you can buy $18,000 worth of stock. In that case your hedging ratio is 0.8. Assume that the value of your stock increases to $19,800 (an increase of 10%) and your short position increases to $8,400 (i.e. the NASAQ 100 went up 5% so you now you need $8,000+5%=$8,400 to close your short position). In this case your hedging ratio drops to 0.74 (your capital is $19,800-$8,400=$11,400 so your hedging ratio is $8,400/$11,400=0.74). The general idea is to keep the hedging ratio within a certain range, say 0.2 (i.e. keep the hedging ratio between 0.7 and 0.9). When the stocks in the portfolio rise relative to the market then capital increases and the hedging ratio (amount shorted divided by capital) goes down. Once it goes below the lower limit (0.7 in this case) you buy more stock and short the NASDAQ 100 an additional amount to bring the hedging ratio back to 0.8 (the halfway point of the targeted range). Conversely, when the stocks in the portfolio go down relative to the market and capital decreases, the hedging ratio (amount shorted divided by capital) goes up. Once it goes above the upper limit (0.9 in this case) you sell stock and reduce your short position to bring the hedging ratio back to 0.8. My simulation results show that this strategy is just as successful as the margin strategy but has a more consistent performance (i.e. it may lag the margin strategy during bull markets but outperforms the margin strategy during bear markets).