I want to draw your attention to a possible good risk-reward edge stemming from stage analysis. The percentage of stocks in accumulation and mark-up stages has crossed back above its 5-day moving average from below 30%.
Since the start of the Alphascanner website last year, we have had 4 other occurrences of this signal. In the table below, you can see the dates and returns for IWM, SPY and QQQ when buying at the closing price of the signal (yesterday’s close in the current case) and selling at the closing price when the indicator crossed back below the 5 dma.
The average return for QQQ, IWM and SPY were +6.74%, +4.76% and +3.62% respectively. If you check the trades on past charts, there never was any significant drawdown. The second trade finished flat, but initially saw two weeks of rising prices before retracing it all. All major drawdowns were intraday and were reversed each time at every close. So, buying the dips or at yesterday’s close limit does offer a good discretionary reward-risk from stages structure and dynamics. For some reason, the edge seems to be even much stronger with QQQ and it is probably the best choice with IWM. Please note that 4 events are not statistically significant and you must use a sound risk management discipline in conformity with your trading style comfort zone.
Billy – www.effectivevolume.com