The Top 5 Momentum Indicators every Trader needs to know

Wednesday, Jan 18 2012 by
16
The Top 5 Momentum Indicators every Trader needs to know

Is the trend really your friend? It seem so ridiculous that just because a price is going up that it should continue to go up, but that's precisely what has been observed in the price behaviour of stocks. Just as with jewellery, it seems that the more expensive stocks get, the more buyers start to crave them. The 'momentum' effect has been tested in many different ways by financiers, whether in theory by academics in finance journals or in practice by hedge funds, and has been found time and again to be a persistently profitable strategy. In fact it is so persistently profitable that it is now known as the 'premier anomaly' amongst finance geeks. Its acceptance makes it something of a self-fulfilling prophecy meaning investors have to beware when their stocks are trending badly.  

Given that the market has been trending up over the last month, its a good time to look at what momentum indiators really work and how much can you profit from them.   We have gathered our pick of the top five indicators investors should track to find momentum stocks and time the overall market. 

1. 52 Week Highs and variations

Research has found that buying stocks making new 52 week highs and shorting those that aren't returned 0.6% per month over a six month holding period. Even stronger results have been found for a 3 month holding period.

The famous Turtle Trading experiment ran trend-following rules based on buying breakouts in various asset classes over much shorter timeframes - either 20 day or 55 day highs - showing that other similar strategies can work too. The full rules can be found here and the full turtle story is fascinating for historians!

2. 1y and 6m Relative Strength

Relative Strength shows the difference in the price movement of a stock compared to the price movement market over a time period. In contrast to absolute price movements, relative strength can be positive even if the stock has fallen as long as the market has fallen even further. This subtle difference to absolute strength makes it a much more useful tool for discovering all weather outperformance and thus it is more often used as a criteria in investing systems.

In What Works on Wall Street James O'Shaugnessy showed that investing in stocks with the highest 6 month relative strength from 1926-2009 would have outperformed the…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way

Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


Do you like this Post?
Yes
No
17 thumbs up
1 thumb down
Share this post with friends




5 Comments on this Article show/hide all

promethean 18th Jan '12 1 of 5
2

Here's a list of the stocks with mCap > £150m that are at or near their 52 Week High

 

Name
MktCap £m
% 52w High
BT Group plc 14,999 -1.39
Pearson plc 9,473 0.03
Associated British Foods plc 8,320 -1.51
Experian plc 8,173 -1.96
Old Mutual plc 7,359 -1.09
The Sage Group plc 3,676 -1.11
Intertek Group plc 3,103 -1.22
Babcock International Group PLC 2,481 0.38
Charter International Plc 1,503 -0.10
Persimmon plc 1,459 -1.06
Melrose plc 1,299 -2.06
BH Macro Ltd 1,280 -1.87
Hunting plc 1,085 -1.03
De La Rue plc 862.5 -2.36
QinetiQ Group plc 833.4 -1.81
Fenner plc 788.6 0.57
Micro Focus International plc 640.4 -2.24
Cove Energy PLC 607.8 -0.80
International Public Partnerships Ltd 592.2 -1.81
RPC Group plc 570.5 -2.04
iEnergizer Limited 415.8 -0.25
Hamworthy Plc 347 -1.95
NCC Group PLC 274.1 -2.31
Anite plc 258.4 0.79
Robert Wiseman Dairies PLC 254.8 -0.26
Collins Stewart Hawkpoint PLC 212 -0.80
Nichols plc 205.1 -1.80
Edinburgh US Tracker Trust plc 195.7 -0.07
RWS Holdings plc 182.9 -0.87
Advanced Computer Software PLC 158.8 -2.04
Utilico Investments Ltd 158.4 -1.29
Northern Electric plc 150.1 -1.55

 

| Link | Share
promethean 18th Jan '12 2 of 5
1

And 50 Stocks with the highest 1 year Relative Strength right now with mCap > £50m

Name
MktCap £m
RS 1y
Quindell Portfolio PLC 135 1,452
Sierra Rutile Ltd 266.5 420.7
Powerhouse Energy Group PLC 58.1 371
xG Techonology, Inc. 79.7 230.6
IP Group Plc 278.7 166.6
Coastal Energy Company 1,065 144.2
Cupid PLC 162 109.2
Hamworthy Plc 347 108.7
Pinewood Shepperton plc 120.7 106.6
GLOBO Plc 58.3 93.6
Rightmove Plc 1,347 85.2
IDOX plc 83.0 83.4
Planet Payment, Inc. 134.8 82.3
Telecom plus PLC 476 80.5
Andes Energia PLC 72.0 80.0
iEnergizer Limited 415.8 76.9
Torotrak plc 54.0 74.1
Kenmare Resources plc 1,098 73.8
Gulf Keystone Petroleum Limited 2,182 72.4
Kryso Resources plc 75.2 70.4
Gemfields PLC 72.3 68.5
Arena Leisure plc 147.2 67.8
Paypoint plc 343.2 67.2
RPC Group plc 570.5 66.2
Games Workshop Group PLC 157.6 65.6
London Security plc 210.8 65.0
Park Group plc 78.1 64.7
Alternative Networks Plc 132.9 64.0
Galliford Try plc 365.1 63.7
Park Plaza Hotels Limited 83.7 58.1
Tribal Group plc 53.3 57.1
Filtrona PLC 771.7 55.9
Iomart Group Plc 124.5 55.1
Plexus Holdings PLC 65.2 54.2
BTG plc 976.2 53.5
Hogg Robinson Group plc 164 52.6
Randgold Resources Limited 6,144 52.2
British Polythene Industries plc 86.8 51.6
Endace Limited 79.7 51.2
Cove Energy PLC 607.8 50.6
TeleCity Group Plc 1,174 49.4
Dialight Plc 229.9 48.7
Polar Capital Holdings plc 139.5 48.7
Sirius Minerals PLC 223.3 48.6
Sports Direct International Plc 1,253 48.2
Advanced Medical Solutions Group plc 175.9 47.5
The Berkeley Group Holdings plc 1,624 47.1
Anite plc 258.4 47.0
Hargreaves Services plc 279.9 46.2
Ashtead Group plc 1,034 46.1

 

| Link | Share
michael john brown 11th Feb '13 3 of 5

I would like to modify some of your preset screens,such as increasing the relative strength filter to the top 2 % only and similar with recent earnings,to be even more selective,but I dont know where you set the hurdles in your screens so I dont know how to......I have long time liked W O'Neills CANSLIM and would like to try doing as I detail and more similar modifications,but I need your help to do it------any chance we could try??? Michael J Brown

| Link | Share | 1 reply
Murakami 11th Feb '13 4 of 5

In reply to michael john brown, post #3

Hi Michael, this is what they are designed for - we call it "forking". See here in the FAQ for details on how to do this: http://help.stockopedia.co.uk/knowledgebase/articles/143177-can-i-edit-fork-the-guru-screens-

Feel free to raise a support ticket via the Green Help & Feedback button on the right if you need a hand.

| Link | Share
lightningtiger 20th Oct '13 5 of 5

Way out of date not many survivors, to many stocks for my kind of Portfolio. I can only see 3 or 4 stocks that are worth considering right now.
Cheers Lightningtiger

| Link | Share

What's your view on this article? Log In to Comment Now

You can track all @StockoChat comments via Twitter


About Edward Croft

Edward Croft

CEO at Stockopedia where I weave code, prose and investing strategies to help investors beat the stock markets. I've a background in the City and asset management but now am more interested in building great stock selection tools for the use of investors online.   Traditionally investors online have had very poor access to the best statistics, analytics and strategies for the stock market and our aim is to set that straight.  High Quality fundamental information has been prohibitively expensive in the past and often annoyingly dull. People these days don't just want to know the PE Ratio and look at a balance sheet. They expect a layer of interpretation over data, signal from noise and the ability to know at a glance whether a stock is worth investigating or not. All this is possible using great design and the insights gleaned from quantitative research.  Stockopedia is where we try to make it happen ! more »

Follow


Stock Picking Tutorial Centre



Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis
Foliobuilder