How it works
A calendar rule reviews weights on predetermined dates. A threshold rule acts when a weight crosses a defined band. The band must specify percentage points or a percentage of the target: these are different measurements. Monitoring dates and the reference valuation also need to be fixed before testing a rule.
New contributions can reduce an underweight allocation without selling another holding. Alternatively, selling overweight assets and buying underweight assets changes existing positions. Cash, accrued income and settlement balances belong in the denominator if the policy includes them. Keep that definition consistent from one review to the next.
Worked example
Assume a fictional 60/40 target and a total value of 10,000, split 6,600/3,400. The first weight is 66%, six percentage points above target. A five-point band is breached. With no fees or taxes, transferring 600 from the first asset to the second restores 6,000/4,000. Five percent of the 60% target would instead mean a three-point band.
Interpretation and limits
Rebalancing incurs spreads, fees and potentially taxes. It can reduce exposure to a continuing winner and does not guarantee higher returns. A target allocation itself requires an independent rationale; a precise rule cannot make an unsuitable target appropriate.
Chart practice
Use available closed monthly bars to observe different price paths, then calculate hypothetical weights separately. Student Wyckoff Pro supports chart analysis, not personal portfolio accounting. Record the review date, target, band and cash-flow assumptions before interpreting the historical result.
Primary sources
Sources explain the mechanics and limitations; the editorial examples use invented numbers rather than market quotations.
Your next practical step
Continue with analysis of available closed daily, weekly and monthly bars.
Open the first-chart instructions ↗