PowerRatings End of the Month Study
In a
previous article we shared research with you that showed “Over the past
11 3/4 years, stocks have been much stronger near months-end than they have been
any other time of the month.â€
At the time, we briefly touched on the fact that
while these statistics were impressive, they could be greatly improved if they
were combined with PowerRatings. This article shows you just how dramatically
you can increase your edge — both in terms of average percentage gain and
accuracy (percentage of winning trades) by adding a few simple conditions.
To start with, we focused on stocks with
PowerRatings 8 or higher. We then combined the days of the month study by only
buying stocks on day 24, or later, of the month. As an exit rule, we used a
close above the 5-day simple moving average.
We also compared two possible types of entries:
For comparative purposes, before getting to the
results, here’s a reminder of the results from our previous study:
- The average gain for all days (meaning if
you randomly bought a stock and held it for five days) when it was above its
200-day MA from January 1995-September 2006 was 0.27%
And, here is an excerpt from our days of the
month study that shows the positive upward bias towards the end of the month.
Days of the Month, Above
200-Day MA, 5-Day Hold
|
Day of Month |
Average % Gain |
% Correct |
|
24 |
0.91% |
58% |
|
25 |
1.34% |
61% |
|
26 |
1.09% |
59% |
|
27 |
0.89% |
58% |
|
28 |
0.65% |
56% |
|
29 |
0.61% |
55% |
|
30 |
0.83% |
56% |
|
31 |
0.52% |
52% |
|
Total |
0.86% |
57% |
Let’s now compare those earlier results with our
new study:
- Stocks with PowerRatings of 8 or higher
- Entry day 24 or later in the month
- Exit rule is close above 5-day simple moving
average - Buying on the Open vs. Buying on a Limit Order
5% below the previous close
PowerRatings End of the
Month, Above 200-Day MA, 5-MA Exit
|
 |
Average % Gain |
% Correct |
|
Buy on Open |
1.47% |
65% |
As you can see the numbers are significantly
better — both the average percentage gain and the percent correct. In fact,
buying stocks with high PowerRatings (8-10), trading above its 200-day MA, on
day 24 or later of the month, and using a dynamic exit (close above 5-day MA),
rather than a fixed 5-day exit, increases your edge from 0.86% to 1.47%. And the
percent correct jumps too, from 57% to 65%.
Let’s now take this one step further. Instead of
buying on the open, we’re going to place a limit order 5% below the previous
days close (to learn more about combining limit orders with PowerRatings,
click here).
- Stocks with PowerRatings of 8 or higher
- Entry day 24 or later in the month
- Exit rule is close above 5-day simple moving
average - Buying on a Limit Order 5% below the previous
close
PowerRatings End of the
Month, Above 200-Day MA, 5% Limit Order Entry, 5-MA Exit
|
 |
Average % Gain |
% Correct |
|
5% Limit Order |
3.86% |
72% |
Adding the 5% limit order entry dramatically
improves results once again. In fact, the average % gain is now more than 2.5
times greater than the “Buy on Open†study, and nearly 4.5 times greater than
the original end of month bias.
1. End of Month
2. PowerRatings End of Month
3. PowerRatings End of Month (5% Limit Order)
Conclusion…
We hope this information is helpful to you. If you
would like to attend a free class which covers this research and strategy
further, please
click here for the calendar of the upcoming online classes.
For a free
PowerRatings trial, click here. If you have any questions on the research or
the strategy please feel free to email us at
editor@tradingmarkets.com or call
213-955-5858 ext 1.
Larry Connors is CEO and Founder of TradingMarkets.com
and Connors Research.
Ashton Dorkins is
Editor-in-Chief of TradingMarkets.com.