Profitable stock market strategies are not easy to come by. One proven path is to seek out stock market anomalies. A stock market anomaly is a rate of return or investment strategy that seems to defy the efficient market hypothesis. Today, most investors agree that markets are fairly efficient even if they don’t believe in […]
Strategies/ Systems
Improving Trend Following With The PE Ratio
In a previous article we looked at the effects of introducing price to earnings data to a mean reversion strategy. Although the effects were quite small, we found that we could improve a simple RSI strategy by avoiding stocks with negative PE ratios. We also found that stocks with PE ratios over 15 produced higher […]
Should You Combine Trading Strategies?
The general advice with trading systems is that you should try to combine multiple trading strategies together in order to get the benefit of diversification. Having a suite of profitable trading algorithms means that you can obtain a smoother drawdown and reduce your chance of having a losing day, week, month, year. However, is it […]
Improving Mean Reversion Strategies With PE Ratio
I’ve always wondered whether you can improve a trading strategy by including fundamentals. For example, should you trade mean reversion stocks with a low PE or a high PE? Most mean reversion strategies use technical indicators and the RSI(2) and RSI(3) indicators are particularly popular among traders. However, there isn’t much research on combining those […]
Does This Trading System Really Make 20% Per Year?
The trading website Finviz.com shows a simple strategy based on the RSI indicator with an annualised performance of 19.59% per pear. The rules are to go long a stock from the S&P 500 when RSI(5) crosses under 20 and to sell when RSI(5) crosses back over 50. The following chart shows the backtest performance published […]
Should You Ignore Financial Stocks?
The financial sector took a battering in the 2008 crash which led to at least two major headwinds for financial stocks: Financial companies became highly regulated. New laws came in that prevented banks and other institutions from making the big profits they were used to. Quantitative easing caused interest rates to drop to record lows. […]
Investigating Skewness And The Lottery Effect In Stocks
The lottery effect explains our willingness to accept poor odds for a chance to win a huge sum. It’s why millions of us play Lotto or the PowerBall despite huge odds of one in 292,201,338*. We don’t mind spending a few bucks for the chance to win a gigantic sum, even though the odds are […]
Testing The Half Day Reversal Strategy
While browsing Quantpedia I came across another interesting trading strategy called the Half-day Reversal. This is a short-term, mean reversion strategy that buys the worst performing stocks in the S&P 500 and holds them overnight. The indicated performance is 57.7% per annum with a Sharpe ratio of 3.03. These are incredible numbers so let’s put […]
The Truth About Intraday Momentum
A few years ago an interesting paper called Market Intraday Momentum was published which revealed a simple trading edge for the S&P 500 ETF. According to the paper, the first half-hour in the S&P 500 predicts the last half-hour. So if the first half-hour is positive, the last half-hour also tends to be positive. In […]
What Is The Long Term Performance Of Microcap Stocks?
Microcap stocks are great for day traders and swing traders because of their volatility. But I wanted to know how well they perform on longer timeframes. In this article we analyse a decade of performance data to see what you can expect from investing in microcap stocks. Data Preparation To do this analysis we will […]
