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.