Rebalance Strategies

This is a simple technique that can increase returns per dollar traded. This blog will show an example of a simple strategy to demonstrate the advantages of Rebalance strategies.

The base strategy is quite simple and uses all built-in signals inside of Build Alpha:


  • RSI2 crosses above 15 and 20
  • Vix term structure is positive (front two months, contango)


  • RSI2 crosses below 95
  • $1,000 stop loss (all positions based on $10,000 at time of entry)

The way the Rebalance strategy/filter works is that we first set the rebalance period. Choices are: daily, weekly, monthly, quarterly, and annually. We will use monthly in this example.

We then set the ranking method. Choices are: Profit Factor, Winning Percentage, Average Return, Volatility, Sharpe Ratio, Range Location, Rate of Change, Momentum, and Fip Score (% return * [neg% days - %pos days]). We will use winning percentage in this example.

At the end of each rebalance period, we rank our symbol universe based on the ranking method and then apply our base strategy to ONLY the top (or bottom) N symbols. We will use a symbol universe of only SPY and TLT in this example.

Also, we will rank SPY and TLT each month based on their winning percentage in the prior month and then apply our simple base RSI2 strategy to ONLY the higher ranked symbol for the next month.

If the same symbol is ranked higher (i.e., permitted to trade) for consecutive months then we would calculate the new position size for the new month and then rebalance the existing position. Hence, the name Rebalance strategies.

For example, if long 1,237 shares of SPY in May, and at the end of May we determine our June symbol is SPY, and our new size should only be 1,200, it would automatically sell 37 shares.


Rebalance Strategies
Rebalance Strategies

Comparing the results of applying the base RSI2 strategy on both SPY and TLT to the results of applying the base RSI2 strategy on SPY and TLT with the rebalance filter shows significant positive improvement while decreasing the capital at risk while using the rebalance filter. Kind of a big deal!

On the left, you can see if we 'blindly' applied the base RSI2 strategy to both SPY and TLT each month. That is, each would have its own $10,000 position each month. The right shows the same RSI2 strategy but only applied to the top ranked symbol based on the previous month or a single $10,000 position.

You can see the rebalance filter and symbol universe ranking provided equal returns while limiting exposure from 2007 to present day.

Again, this is not meant as a standalone strategy or a free alpha giveaway... but a simple example to demonstrate the need to turn over every stone in our testing to uncover alternative ways to reduce risk and exposure. If you are not checking if rebalance filters and cross-sectional momentum can improve your returns... then why not?

In short, the trader can select a basket of symbols, rebalance period, and ranking method then thousands of entry and exit signals. Build Alpha will automatically find the best base strategy to apply to the top (or bottom) N symbols in the selected basket based upon your input.

Of course, all output, including the symbol ranking and rebalancing, can be automated in TradeStation through the code generated from Build Alpha.

I hope this helps demonstrate the power of rebalance strategies and filtering the symbol universe. It is just another arrow in the quiver for savvy systematic traders. If you have any questions, please contact me at Thanks for reading.

About the Author Dave Bergstrom

My name is David Bergstrom, and I am the guy behind the Build Alpha software. I have spent many years researching, building, testing, and implementing market making and trading strategies for a high frequency trading firm, a handful of CTAs, individual clients, registered money managers, and even aspiring retail traders. I am a self taught programmer who uses C++, C#, Python, Perl, Java and even TradeStation’s EasyLanguage. Most of my experience has led me to a series of repeatable processes to find, create, test, and implement trading ideas. Build Alpha is the culmination of this process from start to finish.

  • jerome says:

    Good and interesting but you can’t test the software, you have to buy it.

  • >