Stocks & Commodities V. 33:08 (34–38): Combining Persistence With Strength by Norman J. Brown

Combining Persistence With Strength by Norman J. Brown

Here’s a switching technique that combines a stock’s persistence and ranking strength to offer enhanced returns compared to buy & hold investing.

In my article “Parameters Affecting Stock Returns” published in the August 2014 issue of Technical Analysis of Stocks & Commodities, I pointed out that buy & hold (BH) investing in equity stocks have their annualized returns severely suppressed by a debilitating tilt of the R ratio (R = win ratio = Roc+ / Roc-) downward, well below R = 1.0 (tilt, T<0). My earlier articles described a trading technique termed one rank (OR) that switched a single mutual fund (or exchange traded fund) and offered an enhanced return over BH. This is a direct result of trading (switching) only those funds that exhibit a persistence of returns over that of a random distribution, a process explained in those articles.

COMBINING STOCKS

In this article, I will expand OR into more than one stock using a formula that takes advantage of the OR process combined with the ability to switch back and forth into the highest-ranked stock, a process designated one rank/relative strength, or OR/RS...