Volume-Driven Top 500 U.S. Stocks Default Strategy Unveils Performance Pitfalls

Universe Confirmation

The proposed universe defaults to all U.S. common stocks with reliable price/volume data. This approach ensures broad market exposure but may include low-liquidity or micro-cap names. If a narrower focus on S&P 1500 constituents is preferred (to avoid noise from less liquid securities), please specify.

Ranking and Execution Parameters

The default assumes ranking based on the prior day’s close volume, entering positions at the next day’s open, and exiting at the next day’s close. This avoids look-ahead bias and aligns with standard back-test practices. The alternative—ranking/trading on the same close—is discouraged due to methodological risks. Confirmation of this approach is requested.

Portfolio Construction

The strategy defaults to equal-weight allocation across the top 500 names daily. No position-level or portfolio-level risk controls (e.g., stop-loss, drawdown limits) are included unless specified. This simplifies execution but ignores real-world risk management considerations. Adjustments to risk controls can be proposed if needed.

Frictional Costs

Transaction costs and slippage are excluded in the default setup. Including these would require assumptions (e.g., flat fee per trade, slippage as a percentage of price). If desired, please provide specific parameters for cost modeling.

Tool Capability

The back-test engine supports daily rebalancing with multi-asset portfolios, provided clear trading signals are generated. Once the above parameters are finalized, the signal file can be produced and fed into the system.

Summary of Defaults

To proceed, the following defaults are proposed:
1. Universe: All U.S. common stocks with reliable data.
2. Ranking/Execution: Prior day’s close volume, next day’s open entry, next day’s close exit.
3. Portfolio: Equal-weight across 500 names.
4. Costs/Risk Controls: None.

If these align with your requirements, I will proceed to generate the signal file and initiate the back-test. Adjustments to any parameters above can be requested at this stage.