In this article I explain the RSI technical analysis indicator. I then test the indicator on historical stock market data in order to analyse its effectiveness.
In the 2011 academic paper “Another look at trading costs and short-term reversal profits“, the authors (De Groot et al) speculate that a simple mean reversion strategy in US stocks is able to significantly outperform the market. The strategy seems to have promise, especially when used in a rotational setting with smart allocation.
The price-to-earnings ratio, or PE ratio, is one of the simplest but most popular financial ratios for estimating the value of a stock. Even though the PE ratio is simple, it’s an amazingly useful tool. In fact, a study by Merrill Lynch found that 33% of professional investment managers consider the PE ratio before investing in a company. […]
I never recommend trading off tips. It doesn’t matter whether it’s your next door neighbour or Warren Buffett, if someone tells you to buy a stock you should always do your homework first before you put any of your own money on the line.