Divide By 20: One Year later

Happy New Year, one day early. Here’s wishing 2017 is successful for you in whichever way you define success.

Aren’t calendars wonderful? A couple of days ago, up pops a reminder on my calendar to revisit a post I did a year ago. At the very beginning of 2016, I wrote a post on whether yearly performance was mean-reverting, and found some interesting things. You might want to go back and take a look first, before you continue reading here.

Continue reading Divide By 20: One Year later

Chasing the Momentum-Burst Unicorn

unicorn-stocks-fin

A reader of my blog, Matt B., commented recently on an old post I’d written about momentum bursts. Like me, Matt was intrigued by the short 3 to 5-day momentum bursts he saw described time and again on Pradeep Bonde’s stockbee site. Those bursts look so pretty, so elegant, and more to the point: so profitable.

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The Myth of Scaling Out

left_scale
Photo by Winnifredxoxo. Used under Creative Commons License

A common tactic for some traders is to scale out of successful positions. The logic is this: I’ve already made some money, so I want to hold onto some of that. I’ll cash out a portion of my trade now, and see how the trade continues, but with reduced risk. You see this behavior with day traders, as well as long-term investors.

But it’s a fallacy.

And it’s costing you money.

Continue reading The Myth of Scaling Out

Momentum and Mean Reversion in Different Time Frames

SPX example

In a recent blog post, I rather glibly stated that the market tends to revert to a mean. A reader called me out about the time frame I was using, which raises a good point. A market can tend toward both mean reversion and momentum over different time frames. Many traders would argue that different markets show different characteristics over specific time frames, and that these characteristics are persistent. Continue reading Momentum and Mean Reversion in Different Time Frames