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May 12, 2005 - Today we construct a scan that helps to find stocks that may be attractive in light of Pritamani and Singal’s research.
In early April we discussed the academic article “Return Predictability Following Large Price Changes and Information Releases” by Mahesh Pritamani and Vijay Singal. The article highlighted that momentum trading of fundamental events was successful contingent upon high volume. Click here for my summary of the article.
Today we construct a scan that helps to find stocks that may be attractive in light of Pritamani and Singal’s research.
In order to make it to our list, the stock has to be reasonably tradable. Thus, we require some liquidity: 100,000 shares traded per day, on average.
Next, we require the high volume, as in Pritamani and Singal (2001). Specifically, we want twice the normal volume.
We require positive short-term momentum. We use the directional indicators and the 1-day change as proxy for this.
Finally, we require an exceptionally strong intra-day trend, as calculated by how much of the intra-day volatility translated into upwards movement.
Once completed, the screen should look like this:
SwingTracker
The results:
SwingTracker
Of these stocks, we particularly like:
MUSE
SwingTracker
INNO
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Disclaimer: Please note that charts and commentary provided by the moderator are for educational purposes only. Any trades placed upon reliance on the moderator’s charts or information is taken at your own risk for your own account. Past performance is no guarantee of future results. While there is great potential for reward trading stocks, futures and options, there is also substantial risk of loss and you must decide your own suitability to trade. Future trading results can never be guaranteed. This is not an offer to buy or sell stock, futures, options or commodity interests. Most trading systems are based on historical formulas which have worked in the past. However, what has happened before may or may not happen again. You can lose all your money trading stocks, futures, and options and you must decide your own suitability as to whether or not to trade. Only trade with true risk capital you can afford to lose. Only trade markets you can properly afford to trade. Properly funded trading accounts typically perform better than those that are not. Never risk more than 2-3% of your account on any one trade. Always define your risk before entering a trade and place a stop to limit your risk. There are no guarantees or certainties in trading. Trading involves hard work, risk, discipline and the ability to follow rules and trade through any tough periods during a system’s draw downs. If you are looking for a guarantee, trading is probably not for you. Most people lose money trading. One of the reasons is that they lack discipline and are unable to be consistent. A system can help you become consistent. Ironically, worrying about the monetary aspect of trading can contribute to and cause a trader to make trading errors. Therefore, it is important to only trade with true risk capital.
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by Larry Swing
