Buying a stock that is already in an upward trend and at the same time provide new buy signals can be very profitable over time, a recent technical analysis from Investtech.com shows.
“The results are clear and very interesting. Shares with the purchase tag from the rising trend has given consistently good results over time, with significant excess returns relative to the benchmark index.”
(Article in English, copy of original survey in Norwegian)
A recent analysis by research managers Geir Linløkken and Asbjørn Taugbøl at Investtech.com have concluded that the shares that sends purchase signals in a rising trend can be a very profitable investment over time.
“The results are clear and very interesting. Shares with the purchase tag from the rising trend has given consistently good results over time, with significant excess returns relative to the benchmark index,” Taugbøl says.
The research report shows that the shares after buying signal has an average return after one month at 2.7 percent and after 12 months at 20.0 percent.
Stock Exchange’s average is respectively 1.0% and 12.3%, resulting in an excess return of 1.7 and 7.7% respectively after one month and 12 months.
Sales tags, ie shares that are entering a downward trend, falling on average 1.1% the first month.
After one year, the shares of convergence on average increased 5.2 percent, ie 7.2 percentage points less than the benchmark index, the study shows.
Taugbøl and Linløkken has an extensive research work taken based on the shares on the Oslo Stock Exchange from 1996 to 2009.
For each stock is identified on the days on which it has entered a rising trend, and defined this as a buy signal.
Altogether, it was identified 3747 buy signal.
It is then seen to exchange rate movements in the post-purchase signal, and compared with the benchmark index (OSEBX). Similarly, it is seen what happens when the stock comes in a falling trend, defined as a sale tag.
Altogether, it was identified in 2792 such sales signals.
The trends are automatically identified, and the requirement of an upward trend is that it has a rise rate of more than 10 degrees.
Here are the results:
The blue curve, ie, buying signals, is above the black curve after the signal date, and the red curve, ie the sale signals, located under the black curve after the signal date. It shows that the purchase signals, ie purchase of shares when they come into an upward trend, on average, have a positive share price performance relative to the average benchmark index development.
Conversely, the sale signals, ie purchase of shares when they are entering a downward trend, on average, a negative share price performance relative to the average benchmark index development.
Sales tags, ie shares that are entering a downward trend, falling on average 1.1% the first month. After one year, the share of sales signal from the downward trend in average increased 5.2%, ie 7.2 percentage points less than the benchmark index.
The calculation of the average development of the share purchase signals the trend is done on the basis of as many as 3747 cases. The uncertainty in the estimate, measured by standard deviation, is thus relatively low.
In addition, the average returns for buy signals 22 to 250 days after the signal, between 6.7 and 8.1 standard deviations above the benchmark index’s return.
So high values are considered clearly significant.
In both Norway and Sweden provides thus shares coming into an upward trend, a better return than the benchmark index, while shares that are entering a downward trend for lower returns than the benchmark index.
In addition, it emerges from Figure 5 and Figure 6 that in both countries increases excess return most of the first 3 to 4 months after the signal.
It is seen how the excess return for shares that have given buy signals from the rising trend, varies from year to year. Large variations will degrade the overall performance, but at the same time give indications in which situations the strategy seems particularly good, and when it does poorly.
The benchmark index has in the period 1996 – 2009 had both positive and negative returns on an annual basis. In positive years it is natural that there is more purchases signals than in negative years, but after almost 14 years, there has been a positive excess returns in 13 of them.
Nor is such that it is some years in particular contribute greatly to the excess return overall.
A strategy based on buying signals from the rising trend, seems thus robust against annual fluctuations.
Shares with the purchase tag from the rising trend has given consistently good results over time, with significant excess returns relative to the benchmark index.
Based on historical exchange data for the shares on the Oslo Stock Exchange during the period 1996 – 2009 and OMX Stockholm during the period 2003 – 2009, have shares that are coming into increasing trends, done better than the benchmark index in the following year.
For buy signals, a relatively steady increase in excess return over the period after the signal date, but with a slightly higher rise pace the first 3-4 months.
Conversely provides sales signal negative returns and to a lesser return.
The trends identified by fully automatic systems, over a relatively long period of time. It provides a large number of signals, as a basis the data is considered good and the results statistically significant. The survey shows high excess returns over time, with 13 of 14 years of excess return for Norway, and seven of seven for Sweden.
The results are seldom sensitive to the stock exchange in the same period, rising or falling.
The trends identified by Investtech fully automatic systems, over a relatively long period of time.
It provides a large number of signals, as a basis the data is considered good and the results statistically significant.
The most well-functioning stock markets are affected by the same mechanisms as the Norwegian and Swedish.
Especially presumed underlying psychological drivers, with greed and fear that central factors, there is thus no reason to believe that the overall conclusions of this report will not be valid in other markets.
(In Norwegian only).
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