Factor Model Rotation

Entry Logic

• A factor model is used to identify the factors that are driving returns in the market.
• A long position is taken in the factors that are expected to outperform.
• A short position is taken in the factors that are expected to underperform.
• The entry is triggered by a signal from the factor model.
• Confirmation is provided by a price action signal that is consistent with the signal.
• The timeframe is determined by the data used to build the factor model.
• The location context is provided by the factor model.
• The market condition is determined by the factor model.

Exit Logic

• The exit is triggered by a signal from the factor model.

Stop Loss Structure

• The stop loss is determined by the factor model.

Risk Management Framework

• Risk management rules are applied to the trades generated by the factor model.

Position Sizing Model

• Position sizing is adjusted based on the strength of the signal from the factor model.

Trade Filtering

• Trades are filtered based on the factor model.

Context Framework

• The factor model provides the context for the market.

Trade Management Rules

• The trade is managed based on the evolution of the factor model.

Time Rules

• The strategy can be applied at any time.

Setup Classification

• The strength of the setup is determined by the strength of the signal from the factor model.

Market Selection Criteria

• The strategy can be applied to any market.

Statistical Edge Metrics

• The edge is determined by backtesting the strategy.

Failure Conditions

• The strategy can fail if the factor model is inaccurate.

Psychological Rules

• The main challenge is to be able to trust the factor model and not to deviate from its signals.

Advanced Components

• A variety of factor models can be used, such as the Fama-French three-factor model.

Location

• The strategy can be applied to any market.