The top 20 clearest trending mid-caps - and some more themes for 2025

That sums up strict rule based systems. Do you blindly follow them or just use it as a basis for further research. To be clear, I'm only going to run a model portfolio for 6-12 months to see how it goes. Happy to give regular updates if there's any interest.

CMC is interesting. If we'd done this a week ago before this week's drop, it would look much better. One days bad performance can wreck the RSQ score if you run the process soon after the drop. But you have the same issue with most rule based systems, they're just a snapshot at a particular time and you're bound to get some duds over time.It also raises the question about if/when you sell individual holdings. Personally I'd use a stop/loss rather than ride out the loss for a fixed period of time.

Currys (LON:CURY) if my memory serves me correctly it was the subject of an unsuccessful takeover offer and I think that played a big factor in its rerating. I have it on my watch list. One thing I have noticed is that it has been doing a lot of tv advertising (trying to increase sales volumes? We shall see)

Ed said in the article above -

• Sorted by trend clarity. (using the r-squared as before)

So I'm assuming that's how he's selected them and how I've ranked the top 20 in the other reply

Can you share which years did badly and if possible what was the main drags in the bad years.

I don’t have information about the negative effects of specific sectors on trend clarity performance. I am though aware of a related “Frog in the Pan” Momentum paper  which highlights the trend effect working better when investor confidence is high and which amplifies momentum effects.

From Empirical Determinants of Momentum: A Perspective From International Data (2022)….. We confirm out-of-sample that ( Frog in The Pan/Trend Clarity) momentum is stronger in up-markets and less-volatile markets; these market states represent high investor confidence….

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4012902

Using the FTSE All Share as an indicator of UK investor confidence, I have noticed that my trend clarity returns have been greater while the All Share was on the up (Nov 23 -Jun 24) and have been weaker since the market has been trending sideways. The same weaker outcome was true from Nov 22-Oct 23 when the UK market tracked sidewards. 

FTSE All Share Index - 12M

Also worth noting that my  Stock Pick/Trended Momentum returns during the stronger All Share "UP" period  have been significantly greater than the index gain during that same period, supporting the amplification concept.

I do like looking at charts, the mini charts that you can see on your folios, l find very useful. I judge when ti buy and sell. For example l won't be buying TP Icap (LON:TCAP) now, in fact, l have just sold some. I would be buy if it dips down.

I prefer charts with a steady rising line. 

But l welcome your  R squared score. not something l fully understand.

Thanks for the offer DR2024. I'd be very interested in a spreadsheet that does that. 

I’ve been actively trading and investing for nearly 30 years and have the same problem.  Now, I know full well that to outperform the average you need to do something different.  I learned early that a purely contrarian approach (aka catching falling knives) is a one way ticket to the poor house.  I always trade AND invest with momentum, but I assume that most people who learned lesson number 1 are doing the same.  Meanwhile, buying steady trends is hard because by definition the stock has already risen significantly relative to its long term volatility, which makes it ‘appear’ expensive.  Mug punters are docussed on falling knives.  Those in my category (who survived the falling knives phase!) are looking for breakouts, new momentum, recoveries from rounded bottoms etc….but still find that buying something in the top right corner is just SO hard, unless value criteria are screamingly cheap, which is rarely the case with such stocks because the smart money is buying in anticipation of sharply improved trading, or continually improving prospects, thus they never look cheap.

 I’ll never forget when I visited a top bank’s FX trading floor in my capacity at work, and meeting with their most successful trader.   I asked him how he was so consistently profitable and he told me as if he was imparting a great secret….. ‘well, I watch the market carefully, and wait until there is a very clear trend, then I BUY things that are going UP, and I sell things that are going DOWN’….I honestly thought he was taking the piss, but in the years since I’ve thought many times about that conversation and concluded that he was actually confiding his secret sauce.  It’s a successful strategy because so few people can do it.  I think it works because the truly ‘smart money’ is accumulating and exerting a steady and sustained buying pressure which limits setbacks and results in a steadily rising price aka ‘trend clarity’.  They can foresee that the price is cheap even if it looks expensive to both ‘mug punters’ and ‘momentum wizards’ and that in a year or two it’s likely to be 2-3x the current price.  If you really believed this, one would buy every little dip, reinforcing the trend clarity.  So trading trend clarity is hard because the buying pressure, and lack of selling pressure, comes from the really smart investors with significant resources, and most investors are trying to either buy stuff that appears dirt cheap, or catch rockets.

Derek - I haven't decided what to do with the NAPS for 2025.  It's the 10 year anniversary, and I'd quite like to do something more active, as it will provide more ongoing publishing moments.  Ideally still systematic, but with monthly activity.  

I use the NAPS style approach for some family portfolios, but am looking to squeeze out a few percent extra per year.   So this is one of my motivations for exploring a range of different potential filters to add on,  trend clarity being one of the possibilities.  

No decision yet.  

Re. the NAPS in general - yes it's still recovering from the 2021 high... almost at a new high again.  Normally when it breaks out to the upside it goes on a good run.  30% in the last 12 months or so though - which has been rather good!

Lumpedon - there's a phenomenon known as momentum reversals - where high momentum stocks tend to reverse their last 1 month's direction.   Many academics tend not to use the last 1 month's data as a result when forming their momentum portfolios.  So for the last 12 months, the momentum analysed would be 20th November 2023 -> 20th October 2024 (excluding the last 30 days).

I'm quite keen to explore the stats on how positive buying reversals in clear trending stocks can be.  i.e. buy the dips on clear trends.  Ultimately that's bread and butter to most swing traders... but I'm angling into this from a fully invested 1-year holding period perspective. 

More to come on this. 

Re. Metro Bank - it's not far away from the list, but the r-squared of the line of best fit isn't high enough to make the list. 

iwright shared a great paper last week about "Overlapping Momentum"  which combines the qualifiers of 1 year and 6 month momentum. 

I've actually tested the results this week, and found that OMOM outperforms 1y or 6m on their own (in general). 

I need to do some more work on this... but yes - it's worth adding both the 1y and 6m rule to a screen rule - it does add value. 

I may write about this next week, or talk about it in the webinar. 

Nonetheless, our Momentum Rank does incorporate both 1y and 6m lookbacks, so seems well designed from that POV.  

Rusty - thank you for spotting that.  I should have spotted that.  I have removed Nexxen and replaced with the next highest qualifier - Galliford Try Holdings (LON:GFRD)