13 Oct Stocks on the Move

The core concept which is explored in this book can be described as:

A stock that has been moving up strongly for a while is likely to continue doing so a little bit longer.

Trend following does not really work on Equities as correlation between stocks is typically high, especially during crisis periods. With the high correlation between stocks, meaningful diversification cannot be achieved and diversification is the core premise of traditional trend following. The other major problem with applying traditional trend following strategies on individual stocks is on the short side. Shorting stocks is extremely difficult to be profitable.

The book tested a traditional trend following strategy which worked well for futures but didn’t work for individual stocks. The “All Time High” approach proposed by Cole Wilcox and Eric Crittenden was also tested with some adaptations and this general concept worked better.

A full momentum trading system is then developed for individual stocks and the author took us through a year by year walk-through of how the system would have performed.

The book addressed concerns of over-optimization and showed the robustness of mentioned momentum concept.