Focus on both end of momentum spectrum | stockbee

8/07/2014

Focus on both end of momentum spectrum



Thomas N. Bulkowski published a 3 volume book Evolution of A Trader it has some key findings which momentum traders can use to make money. 

He studied data from 1990 to 2008 on stocks that doubled . He found two key things:

● Stocks that double substantially outperform the following year 53% of the time.

● Stocks that drop 50% or more outperform the following year 68% of the time

In other words, when a stock doubles from the yearly low to the yearly high (with the low and high occurring in that order), expect an unusually large gain the following year about half the time. If the drop from yearly high to yearly low (again, occurring in that order) is 50% or more, then expect an unusually high bounce the next year about 68% of the time. To put it another way, stocks that do well continue to do well. Those that make a large decline tend to bounce back. Those that don't move much tend to remain flat. Thomas N. Bulkowski 

Now that is the kind of data based fact you can take to the bank if you are a smart and motivated trader. Reduce the universe of stocks to focus on for your trading to stocks that double in a year or get cut down in half in a year.

The two approaches can be developed into two momentum scans that will find you this kind of candidates. 

To find stocks that double you just need to find a stock that has doubled from 52 week low.In Telechart you can do with a simple pcf

c/minl252>=2
 
Where C is closing price today and minl252 is 52 week low

To eliminate low volume stocks you can apply some sort of trading volume filter. Based on filter you use you will get between 250 to 300 stocks. 

To find stocks that dropped in half from 52 week high you can create a pcf to find them. 

c/maxh252<=.5

To eliminate low volume stocks you can apply some sort of trading volume filter. Based on filter you use you will get between 500 to 600 stocks.

Now these two scans are just a starting point to get a universe of stocks to focus on. To trade these sucessfully , you need to develop a set up around them. That should not be a big problem for most motivated traders.


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