Many traders and investors have been taught to buy strength and sell weakness. Buying new short-term highs is supposed to be the sign of a healthy market and selling new short-term lows is supposed to be the sign of a weak market. Our results over a 15-year period show the exact opposite.
The highlights of the results include the fact that buying new 10-day highs in the S&P 500 lost money when exiting one week later. In a powerfull bull market, you would have actually lost money by buying these new highs and exiting a week later. Said another way, prices on average have been lower, not higher, one week after the market has made a short-term new high.
The above is from How Markets Really Work: A Quantitative Guide to Stock Market Behavior by Larry Connors, founder and chairman of TradingMarkets, home of PowerRatings, and Connors Group, developers of The Machine.
To learn more about PowerRatings, click here. For The Machine, click here. And to get your copy of the new updated edition of How Markets Really Work, click the link below.