Quantifying stock strength.

Discussion in 'Trading' started by walterjennings, Dec 10, 2010.

  1. I'm interested in breaking up my trading strategies into long and short baskets to help increase and balance diversification. I was wondering if anyone had any good suggestions on the best way to quantify the strength of a stock vs other stocks or vs the market.

    I was thinking tracking daily % change and gauging the rate of change / acceleration may be a good place to start, but it seems a bit overly simplistic.

    Is there a generally accepted methodology for gauging stock strength which is fairly decent that someone could point me towards?

  2. 1) (Persistent trend with small retracements). Quantify those two things and you'll soon become a gazillionaire.
    2) Focus more on portfolio "concentration" instead diversification too. :cool:
  3. Bob111


    funny...i was working on exactly same thing right now...portfolio of strong stocks hedged with index etf,rebalanced monthly(sick and tired from daytrading,specially this month) ROC works..until it doesn't :p
    200 MA helps,but still far from perfect..ROC of volume-doesn't(at least the way i tried).i would appreciate any other ideas. have to try portofolio of weak stocks vs strong, but how to hell i know,which one was shortable?
  4. Avoid "indicators" that are a manipulation/deception from the current market price. Develop something that "indicates" trend persistence. :cool:
  5. Bob111


    from my experience whatever is generally acceptable-usually it's doesn't work :p
    have to come up with something unique.
  6. Hi Walter,

    Yes there are several - nothing wrong with a simplistic approach though.

    1. Do you want to know the strength of the stock so as to select the currently strongest stocks of a related group for your long basket and the weakest for your short basket?

    2. What time frame are you looking at trading?

    3. Are you planning on using price targets? , variable weightings?
    More directly to answer your question:
    A. Market RSI. This is a measure of a stocks relative strength compared to the market. (Not the RSI of the stocks strength on its own internals). {There are also RSI relative to an industry or subindex.}

    B. Momentum. This is a standard measure of strength as given by average rate of change. (also of course DMI and ADX, etc, etc.

    3. Relative charting. You chart several related stocks on the same chart. (see 6.jpg) Here I used one month and as you can tell it relates to question 2.
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  7. I tried to attach several images - but couldn't and then it said my second post was to soon so I've put the rest at a blog.


    on the one one Beta the text at is blurry so here it is attached

    As you can tell from the second picture, you can see that analysts also want to see how the sector and subsector is doing relative to the market average.

    I hope this is of some help - just scratching the surface of the subject:)
  8. beta calc
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  9. All beginners should read HTMMIS.

    Second, read "24 Lessons........

    This acquaints you with trading AND the quality measures of instruments.

    CANSLIM is what contains EPS and RS the percentile based quality indicators of stocks. (3xBeta Universes)

    To make money using portfolios, you do x over trading of the P, V pattern.

    Quality defines the carrier of stock cycles.

    Just work up to 100 cycles a year @ 10% a turn on quality stocks that have cycle amplitudes of 20% a cycle.

    Market timing using Quality based Universe is THE moct consistent of all systems. There are only 3 or 4 rules for timing trades in and out.