Strategy: Pure momentum play

• Compare the total no of volume price gainer and loser for the day -a 70/30 skew is the direction – which although is only partially important
• Classify the gainer loser stocks in sector buckets – any sector with many entries will give the market bias for that sector
• Pick the sector which has a bias, then pick top 3 stocks in that sector
• Take position in line with the bias next day, limiting going in price to current days high or low depending on whether the position is long or short.
• Overall long and short (may) be dollar neutral.
• Need to understand if it makes sense to put a cap on the no of holding days, say 3.

Caveats:

• Doesn’t matter if a stock is looking cheap on PE etc
• Doesn’t matter how much the stock has gone up or down
• Even if the stock has gained a lot, don’t short even if the price volume says so if the sector bias is not short
• Even if the stock has fallen a lot, don’t buy even if the price volume says so if the sector bias is not long
• Don’t fight momentum, let the correction begin, which establishes the low or the high
• Rules above are easy to write down, but very hard to follow