Investing - Part 1

The Baseline Rebalance Strategy: A Rule-Based System for Disciplined Stock Investing

Most investors obsess over stock picks, but few have a system for how much to buy, when to buy, and when to sell — free from emotion.

The Baseline Rebalance Strategy offers a mechanical, disciplined approach that:

✔️ Automates buying on dips and selling into strength.

✔️ Scales positions based on actual price action.

✔️ Prevents emotional overtrading and guesswork.

Step 1: Set Your Target Investment Amount

Decide how much total capital you plan to allocate to a specific stock over the next month. This is your target investment amount.

Step 2: Make Your Initial Purchase and Set Your Baseline

• Invest half of your target amount at the previous day’s pivot point, placing your order pre-market.

• The amount invested becomes your baseline, serving as the reference for all future trades.

Pivot Point Formula:

(High + Low + Close) ÷ 3

Step 3: The 5% Rebalance Rule

At your chosen review interval (daily or weekly):

• If your position value is 5% or more above the baseline, sell shares to bring it back down.

• If your position value is 5% or more below the baseline, buy shares to return it to baseline.

Pre-market orders are executed at the prior day’s pivot point; intraday rebalances (in special cases) are executed at the current price or last bid.

Step 4: Intraday Exception for Major Price Moves

If the stock price moves 10% or more intraday, rebalance immediately at the current price or last bid.

This allows you to:

✔️ Capture major gains quickly.

✔️ Buy into significant dips opportunistically.

Step 5: Adjusting the Baseline — Only on Transaction Days, Within Limits

Only after the close of the day you made a trade do you adjust your baseline:

• If conditions are strong, increase your baseline by up to 10%.

• If conditions weaken, reduce the baseline by up to 10% of your allocated trading amount.

• The baseline cannot exceed your predetermined target investment amount.

Example: If your target amount is $10,000 and you start with $5,000, your baseline may increase with each trade day — but it will never go beyond $10,000.

Step 6: Choosing the Right Stocks

This strategy works across stock types but should be applied to well-researched picks:

• Value Stocks: Undervalued companies with strong fundamentals.

• Growth Stocks: Rapid expansion potential; perfect for scaling into strength.

• Momentum Stocks: Trending stocks where disciplined buying/selling is critical.

Why This Strategy Works

✔️ Removes emotion from every trade.

✔️ Forces disciplined buying of weakness and selling of strength.

✔️ Scales positions naturally as conditions evolve.

✔️ Prevents overexposure by capping investments at your preset maximum.