RBC Trend Follower

RBC is Canada's largest bank and the sector bellwether, with the deepest liquidity and the most active options market among Canadian banks. It trends well when rate-cycle, housing, and credit themes play out, and it leads the Big Six. Its size and liquidity make entries and exits smooth for retail traders.

Use the 20 EMA for the short-term trend and entries, the 50 EMA for intermediate trend confirmation, and the 200 EMA for major trend direction. The 20 EMA is most important for entry timing - enter on pullbacks to a rising 20 EMA in confirmed uptrends.

An uptrend is confirmed when price makes higher highs and higher lows, price is above a rising 20 EMA and 50 EMA, the MAs are properly aligned (20 > 50 > 200), and ADX is above 25. All conditions should be present for a high-confidence trend.

A trailing stop moves in your favour as price moves favourably, locking in profits while allowing the trend to continue. It removes emotion from exit decisions and ensures you capture the majority of a trend while protecting gains.

For cash trading, roughly C$15,000-75,000 is comfortable for meaningful positions given RBC trades around C$278 per share. Options are far cheaper - a single contract represents 100 shares, so an ITM call might cost roughly C$1,500-2,500. You can also start with a smaller number of cash shares since there is no minimum lot size.

Trade RBC longs only when the S&P/TSX Capped Financials Index is in an uptrend (above rising MAs, higher lows). RBC correlates roughly 0.85-0.95 with this index. The strongest RBC trends occur when the sector supports the direction. Avoid RBC longs when the sector is breaking down.

A pullback entry waits for price to retrace to support (the 20 EMA) in a confirmed uptrend - it offers a better price but may not trigger. A breakout entry buys above a recent swing high - it confirms momentum but at a higher price. Pullback entry typically offers a better risk-reward.

Expect 3-5% pullbacks in strong trends. Check: is volume low (healthy)? Is price holding key support (20 EMA, swing low)? If yes, hold the position. Review your stop level, not the price. Pullbacks to the 20 EMA are opportunities to add, not exit. Be mindful of quarterly earnings dates, where gaps can be larger.

Calculate Position Size = Risk Amount / Stop Distance. Risk 1-2% of capital per trade and also limit the position to 10% of portfolio value. Example: C$500,000 capital, 2% risk = C$10,000; a C$12 stop implies 833 shares by risk, but the 10% cap (C$50,000 / C$278 = 179 shares) is the binding limit here.

Primary exit: when the trailing stop (below swing lows) is hit. Secondary: a close below the 20 EMA. Confirmation: ADX falling below 20. Do not exit on emotion or on minor pullbacks. Let the system work - trend following accepts giving back some profit from the highs.

Use ADX and MA analysis. ADX above 25 with MAs spreading is a trending regime (full activity). ADX below 20 with MAs converging is a ranging regime (reduce activity). Also monitor ATR and the S&P/TSX 60 VIX (VIXC) - expanding volatility can accompany trends. RBC trends best during clear rate-cycle direction and sector re-ratings.

Score factors: trend direction (3 pts: price > 20 EMA, 20 > 50 EMA, 50 > 200 EMA), strength (2 pts: ADX > 25, ADX rising), pullback quality (2 pts: near the 20 EMA, RSI 40-60), and sector (2 pts: Financials Index uptrend, RBC outperforming). Enter at 6 or higher out of 9.

For trend following, use ITM or ATM calls with 1-3 month expiry. This provides leverage with reasonable theta decay. Bull call spreads reduce cost but cap upside. Roll positions before expiry to maintain exposure. ITM options have higher delta for better trend tracking. Because RBC options are American-style, manage ITM calls around ex-dividend dates to avoid early assignment.

Single stock (RBC): maximum 10% of the portfolio. Canadian bank sector: maximum 15%. Total financials: maximum 30%. Total portfolio heat (all position risks): maximum 15%. These limits ensure survival even if the bank sector reverses sharply, and they account for how closely the Big Six banks move together.

Document weekly trend direction, daily entry rules (20 EMA pullback plus a 6/9 score), position sizing (1-2% risk), exit rules (trail below swing lows), and risk limits. Journal every trade. Review weekly. Track win rate (target 45% or higher) and profit factor (target 1.5 or higher). Backtest changes before implementing them.