Quantitative screens: relative strength scans

[dc]O[/dc]ne of the very real problems stock traders face is knowing where to focus their attention. Some traders are restricted to certain sectors or sets of stocks, but, even then, quantitative screens can be a useful first step. For traders who have access to the entire universe of stocks, there are still easily over a thousand candidate names, once we’ve filtered for reasonable volume and a decent amount of trading activity. Where to start?

I’ll write more on this soon, but one useful place to start is with a list of short-term relative strength leaders. At the end of this post you will find a screen that has been very useful to me over the years, both for swing trading and daytrading. Even if you are a longer-term “hands off” investor, it may still make sense to look at a list like this, just to make sure you know what is going on in the market–most people read things about the market and other peoples’ opinions of the market, but we can learn about the market by reading the market itself–valuable perspective, that.

Consider this a starting point for idea generation. For practical trading, I’d go through the list and remove those names that are very overextended (LNKD?), and perhaps put them on another list to watch for trades at a later date. (If the market fails, some of these leaders will offer spectacular shorts. A list like this is not just a shopping list for long positions!) Personally, I’d focus my attention on names that are consolidating (e.g., TREX, TMH, THC–what is it with the T’s??) and perhaps look to buy them on breakouts. Also, you might notice some friends from last week on this list–very interesting to see how things come together.

(If you find a list like this useful, we do publish this list, and several other quantitative screens in my daily research with Waverly Advisors.)

[gview file=”https://secureservercdn.net/198.71.233.159/963.3b1.myftpupload.com/wp-content/uploads/2014/08/RS-Strong.xlsx”]

AdamHGrimes

Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.

This Post Has 2 Comments

  1. Socrates-Trader

    What kind of RS do you use? What timeframe you mean by “short-term” RS?
    I am sure, that you know, that research shows, that short-term (up to several month) is mean reverting. Would love to hear your thoughts. Big thanks in advance.

  2. A. Who

    Adam, I am posting a comment on an older post, I hope you’ll notice it; and find some time to answer me; thanks

    I try to understand the meaning of some columns from the above table, and I don’t mean the exact formula behind the numbers, but the idea/meaning/logic.

    Some are self evident, others are guess-albe (ConsCloses = number of down/up -depending on the sign of the number- consecutive days), but I have some questions:

    – KPos – the overall measure of the RS Strength, right?
    – RS(SP500) – what would be the meaning of this?
    – Extension (I assume OB means overbought)
    – – there is a formula behind of this? or is that element of art/discretion? (e.g. you fill in this column after a visual analysis of the chart)
    – – in the article, you say LNKD is overextended; I would expect to find OB in Extension column for LNKD

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