Book Chapter

Seasons of Success

Anderson, Gary Edwin

2012

Overview

Traders employ various methods to identify trades. Nearly all the traders, however, attribute their long‐term success not to some specific technique for identifying trades, but to wise money management. Regardless of the method used to trigger a trade, successful traders judge a position by only one standard once the trade has been taken: Is it working? If forward profitability is the criterion by which an existing trade is evaluated, then why not apply the same test to trade selection? To find out whether a relative strength strategy is working, first the strongest and weakest stocks are identified, and then the changes in each set are averaged and recorded as of the following day. While the specific stocks that rank among the strongest and weakest may vary daily, this method provides continuous accounts of the forward performance of relative strength leaders and laggards. This chapter introduces the Venturi effect, how the Venturi effect applies to trading and how it demonstrates the efficacy of the RSS. Since the performance spread and the relative strength spread both reflect feedback at work in the market, both are broadly in synch, and evidence of feedback provided by one is generally confirmed by the other. The performance spread, however, offers information more immediately relevant to trade management and by extension to trade selection, since it reveals whether relative‐strength strategies are working.

• Publisher: John Wiley & Sons, Incorporated,John Wiley & Sons, Inc
• Subject: forward profitability / Investment & securities / Money management / performance spread / relative strength leaders / relative strength strategy / RSS efficacy / stocks / trade selection / Venturi effect
• ISBN: 1118087070, 9781118087077