Trade Pattern V1 — Buy-and-Hold with Quarterly Rebalancing

Status: Proposed for Phase 2 paper trading validation. Derived from: Phase 1 research synthesis + walk-forward factor validation (2026-05-07).

Executive Summary

After testing 700+ strategy configurations and confirming that all price-based signals fail walk-forward validation, the optimal pattern is simple: full universe equal-weight with quarterly rebalancing. This beats hand-picked BH by +4.9pp over 25 quarters (2019-2026) and adds +20.2pp through dispersion capture on concentrated portfolios.

Entry Rules

Initial Entry

Universe: All tickers in watchlist (19 ASX large-caps as of May 2026)
Position sizing: Equal-weight (1/N per ticker, e.g. $106.67 p er t i c k ero n$ 2K portfolio with 19 tickers)
Timing: Any day — no mechanical price timing. ASX compounders spend 60-70% of time in uptrend; missing a buy day costs more than waiting for a “better entry”.

Re-addition (after sell/rebalance)

Re-enter sold tickers at next scheduled rebalance
No tactical re-entry on dips — mean-reversion fails (-58pp vs BH on walk-forward)

Exit Rules

Scheduled Exit (Rebalancing)

Fee-aware frequency tiers (determined by capital size, per May 2026 fee drag analysis):

Capital range	Frequency	Rationale
$2 K -$ 5K	Annual + >2% drift threshold	Quarterly = 102% of starting capital/year in fees (38 trades × $13.40 × 4)
$5 K -$ 20K	Semi-annual or quarterly + drift filter	Fees manageable; semi-annual reduces fee drag ~30% vs quarterly
$50K+	Full quarterly rebalancing viable	Fee impact <1% of capital annually; dispersion capture justifies cost

For current portfolio ( $2 Ks t a r t in g c a p i t a l) : * * A nn u a l re ba l an c in g * * i s t h e d e f a u lt . Q u a r t er l yo n l y i f p os i t i o n d r i f t > 2$ 13.40) doesn’t exceed expected misallocation cost.

Method: Sell overweight positions, buy underweight positions to restore equal weight
Deviation threshold: Rebalance only when max position drift > 2% of target weight. This avoids unnecessary fee drag from small rebalances that cost more than the adjustment worth.

Stop-Loss

None. No circuit breakers or trailing stops. Phase 1 research shows circuit breakers kill returns (-149pp for vol-target CB at -5%). ASX compounders recover from dips — holding through drawdowns is the strategy.

Take-Profit

None. No price-based take-profit targets. Letting winners run is the core mechanism. Taking profits early on 30% gains leaves money on the table in a market where top performers compound 2-5x over multi-year periods.

Signal Filters (Fee-Awareness)

Only skip rebalance moves where:

Position drift < 2% of target weight (below threshold — no material misallocation)
Round-trip fee ( $9.90 b u y +$ 3.50 sell-deposit = $13.40 on IBKR) exceeds 1% of position value being adjusted

For active strategies (if ever tested beyond BH):

Skip signals where expected gain < 3x round-trip cost
For $2 K p or t f o l i o : minim u m t r a d e v a l u e$ 400 to justify $13.40 fee (1% threshold)
Confirmed by RSI fee-filter analysis: active strategies need $50K+ capital on ASX

Position Constraints

Parameter	Value	Rationale
Max position size	5% of portfolio (1/20 for 19-ticker universe)	Equal-weight default
Max total exposure	100%	Fully invested always
Cash buffer	0%	Time-in-cash kills returns on compounders
Leverage	None	Phase 1 Kelly sizing fails OOS (+52pp IS → -8.3pp OOS)

Expected Performance (Walk-Forward Validated)

Metric	Value	Source
Return vs BH	+4.9pp on full universe EW	Walk-forward 2019-2026, 25 quarters
Fee drag (quarterly)	~3.7% on $2 K p or t f o l i o ($ 99/quarter = $396/year)	Simulation, realistic brokerage
Fee drag (annual)	~1.0% on $2 K p or t f o l i o ($ 248/year)	Annual rebalance + drift filter only
Win rate	N/A (fully invested always)	—
Sharpe ratio	Inherited from BH baseline	No active timing = same risk profile

Note: Fee drag figures reflect IBKR Australia rates ( $9.90 b u y +$ 3.50 sell-deposit = $13.40 round-trip). At 19 tickers, annual rebalance requires 19 trades (not 38), cutting fees by ~67% vs quarterly.

Today’s Watchlist Application

Applying V1 pattern to current watchlist:

Ticker	Price	Target Weight	Entry Action	Notes
BHP.AX	$58.23	1/N	Hold	Highest factor score (0.878), Tier 1 tariff exposure
RIO.AX	$178.46	1/N	Hold	Mining leader, factor score 0.735
TLS.AX	$5.38	1/N	Hold	Top technical score (0.925)
MQG.AX	$241.84	1/N	Hold	Above MA200 + bullish crossover
FMG.AX	$21.20	1/N	Hold	Lowest PE (12.5), strong momentum

All watchlist tickers: equal-weight entry, quarterly rebalance, no mechanical exits.

What This Pattern Does NOT Do

Does NOT use price signals (SMA crossover, RSI, MACD) — all fail walk-forward
Does NOT size by Kelly or volatility — OOS performance degrades to random
Does NOT circuit-break on drawdowns — -149pp penalty confirmed
Does NOT screen by momentum — -68pp vs BH over 25 quarters
Does NOT buy-the-dip (contrarian) — -58pp vs BH

V2 Update: Dividend Reinvestment Impact (2026-05-23)

Question answered: “Evaluate dividend reinvestment impact on total return”

After testing 13 ASX large-caps over 11.4 years (2015-2026), DRIP-style dividend reinvestment adds a substantial compounding benefit:

Metric	Value
Average BH price return	+369.3%
Average DRIP total return	+854.8%
DRIP edge over BH price-only	+485pp
Avg extra shares via compounding	+69.3%

Key findings:

Mining stocks dominate the effect — FMG.AX (+2014% BH, DRIP adds +174% more shares), BHP.AX (+413%, +103%), RIO.AX (+557%, +102%)
Low-yield compounders benefit less — CSL.AX only +13% extra shares from reinvestment, REA.AX only +10%
Transaction costs negligible — avg fees AUD $227/ticker over 11 years vs hundreds of dollars in additional returns

Implication: The V1 strategy should be updated to include DRIP mechanics in Phase 2 execution. Dividend reinvestment is a “free” ~485pp return booster on ASX compounders that requires no active management beyond automatic reinvestment on ex-dates.

Implementation Notes

CronJob for daily price fetch → run_paper_trading.py --mode simulate (ready, needs deploy)
Fee-awareness filter in signal_engine.py (commit 5162a35)
Quarterly rebalance logic: track initial weights, trigger on >2% drift or 90-day interval
Paper trading validation blocked on ibkr-creds restoration

Next Steps for V2

Validate full-universe equal-weight in paper trading when ibkr-creds restored
Test quarterly rebalancing vs continuous rebalancing (fee drag sensitivity)
Explore ROE factor integration if historical fundamental data becomes available
Evaluate dividend reinvestment impact on total return

Quartz 4

Explorer

Trade Pattern V1 — Buy-and-Hold with Quarterly Rebalancing

Trade Pattern V1 — Buy-and-Hold with Quarterly Rebalancing

Executive Summary

Entry Rules

Initial Entry

Re-addition (after sell/rebalance)

Exit Rules

Scheduled Exit (Rebalancing)

Stop-Loss

Take-Profit

Signal Filters (Fee-Awareness)

Position Constraints

Expected Performance (Walk-Forward Validated)

Today’s Watchlist Application

What This Pattern Does NOT Do

V2 Update: Dividend Reinvestment Impact (2026-05-23)

Implementation Notes

Next Steps for V2

Graph View

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