{"id":108929,"date":"2017-07-13T10:09:17","date_gmt":"2017-07-13T14:09:17","guid":{"rendered":"http:\/\/countingpips.com\/?p=108929"},"modified":"2017-07-13T08:09:49","modified_gmt":"2017-07-13T12:09:49","slug":"achieving-alpha-through-momentum-stocks","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/07\/achieving-alpha-through-momentum-stocks\/","title":{"rendered":"Achieving Alpha Through Momentum Stocks"},"content":{"rendered":"<div id=\"inves-2188528285\" class=\"inves-below-title-posts inves-entity-placement\"><div id =\"posts_date_custom\"><div align=\"left\">July 13, 2017<\/div><hr style=\"border: none; border-bottom: 3px solid black;\">\r\n<\/div><\/div><p>By <a href=\"http:\/\/WallStreetDaily.com\/\"><u>WallStreetDaily.com<\/u><\/a> <img loading=\"lazy\" decoding=\"async\" class=\"attachment-home-th size-home-th wp-post-image\" style=\"display: block; margin-bottom: 5px; clear: both;\" src=\"https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/07\/071317_alpha_feature.png\" sizes=\"auto, (max-width: 580px) 100vw, 580px\" srcset=\"https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/07\/071317_alpha_feature.png 580w, https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/07\/071317_alpha_feature-300x155.png 300w\" alt=\"\" width=\"580\" height=\"300\" \/><\/p>\n<ul>\n<li>Achieving alpha is our mission every day.<\/li>\n<li>This is the time to \u201cbuy high, sell higher.\u201d<\/li>\n<li>Trading momentum with ease.<\/li>\n<li><strong><a href=\"https:\/\/pro.agorafinancial.com\/m\/711389\" target=\"_blank\" rel=\"noopener\">Also recommended: What the\u2026?<\/a><\/strong><\/li>\n<\/ul>\n<hr \/>\n<p><img decoding=\"async\" style=\"float: left; max-width: 85px;\" src=\"https:\/\/duip7hn7nchpo.cloudfront.net\/editor-circle-louis-basenese.jpg\" alt=\"Louis Basenese\" \/>There are a million different ways to tackle stock investing.<\/p>\n<p>But however you go about picking stocks, your goal should always be to generate alpha.<\/p>\n<p>Put simply, alpha is the return on an investment in excess of a benchmark, such as the S&amp;P 500 or Dow Jones industrial average.<\/p>\n<p>The relentless pursuit of alpha is our mission every day here at <i>Wall Street Daily<\/i>.<\/p>\n<p>And the shorter the time horizon to realizing those returns, the better.<\/p><div id=\"inves-2919505172\" class=\"inves-in-content inves-entity-placement\"><hr style=\"border: 1px solid #ddd;\">\r\n<div id=\"inpost_ads_header\">\r\n<p style=\"font-size:10px; float:left; color:#666;\">Free Reports:<\/p><\/div>\r\n<div id=\"inpost_ads\"> \r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/1ApBOV\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2018\/06\/graph_techs_PD.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t     <a href=\"https:\/\/goo.gl\/1ApBOV\"><b><u>Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p><br><br>\r\n<br>\r\n<br>\r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/f3RrHX\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2019\/01\/cot_pie_80.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t    <a href=\"https:\/\/goo.gl\/f3RrHX\"><b><u>Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p><br><br>\r\n<\/div>\r\n<hr style=\"border: 1px solid #ddd;\">\r\n<br><\/div>\n<p>Today, senior analyst Jonathan Rodriguez breaks down one of our favorite market-beating strategies to do just that.<\/p>\n<p>Ahead of the tape,<\/p>\n<p>Louis Basenese<br \/>\nChief Investment Strategist, <em>Wall Street Daily<\/em><\/p>\n<hr \/>\n<h2 class=\"centered headline\">Why It Pays to Swim With the Current<\/h2>\n<p><img decoding=\"async\" style=\"float: left; max-width: 85px;\" src=\"https:\/\/duip7hn7nchpo.cloudfront.net\/editor-circle-jonathan-rodriguez.jpg\" alt=\"Jonathan Rodriguez\" \/>Most investors approach the market with a simple game plan: Buy low and sell high.<\/p>\n<p>Not a bad way to make your bones at all.<\/p>\n<p>In fact, the \u201cvalue\u201d investment strategy \u2014 buying undervalued stocks relative to a company\u2019s industry or the broad market \u2014 is based on this idea.<\/p>\n<p>But thanks to record-low interest rates and weak economic growth over much of the last decade, value stocks have underperformed the market.<\/p>\n<p>At the same time, growth stocks \u2014 the issues priced at a premium to the market \u2014 have soared.<\/p>\n<p>In fact, as valuations climb, many financial talking heads are telling investors to stay out of the market and wait for a crash to buy up stocks.<\/p>\n<p>That\u2019s a perfectly good way to miss out on a rally in stocks \u2014 one that could last a lot longer than people think.<\/p>\n<p>There\u2019s better way to play the action: Flip the script.<\/p>\n<h2 class=\"subhead\">Make Friends With the Trend<\/h2>\n<p>Believe it or not, the stock market behaves very much like the real, \u201cphysical\u201d world.<\/p>\n<p>For instance, Sir Isaac Newton\u2019s first law of physics most certainly applies to stocks: An object at rest will remain at rest unless acted on by an unbalanced force.<\/p>\n<p>Let me explain\u2026<\/p>\n<p>Stocks have a tendency to continue moving in the direction they have been travelling. This is especially true over one-year periods. And the \u201cgravitational\u201d phenomenon applies to both stocks in uptrends and downtrends.<\/p>\n<p>And as stocks approach new highs and lows, this phenomenon becomes even more pronounced.<\/p>\n<p>What\u2019s behind the gravity of market trends?<\/p>\n<p>It\u2019s simple, really\u2026<\/p>\n<p>Human investors are emotional beings and have difficulty in objectively valuing stocks at highs or lows, both on near-term and long-term bases.<\/p>\n<p>New information about a stock at either level is slow to be digested by the market, and that delay causes its price to dislocate from its underlying fundamentals.<\/p>\n<p>Simple enough, right?<\/p>\n<p>Well, here\u2019s how you could trade the action\u2026<\/p>\n<p>Instead of buying \u201clow\u201d and selling \u201chigh,\u201d an investor would buy the market\u2019s strongest stocks and sell \u201chigher.\u201d And on the downside, investors short underperformers.<\/p>\n<p>This trading strategy is called momentum investing.<\/p>\n<p>And according to Mark Hulbert, citing data from famed economists Eugene Fama and Kenneth French, the top decile momentum portfolio has beaten the total return of the S&amp;P 500 by 6.6 percentage points from 1927 to March 2017, before transaction costs.<\/p>\n<p>That kind of outperformance is nothing to scoff at.<\/p>\n<h2 class=\"subhead\">How the Average Joe Scores Above-Average Returns<\/h2>\n<p>Senior analyst Martin Hutchinson covered the basics of <a href=\"https:\/\/www.wallstreetdaily.com\/2017\/07\/10\/invisible-force-claims-responsibility-everspins-ascent\/\" target=\"_blank\" rel=\"noopener\"><strong>momentum investing<\/strong><\/a> on Monday. But let\u2019s take a deeper dive today\u2026<\/p>\n<p>There are several different ways to trade momentum.<\/p>\n<p>But for the average investor, the easiest way to implement this strategy is to simply follow the stocks making new 52-week highs and lows.<\/p>\n<p>From there, investors should take a look at a stock\u2019s sector and industry to confirm outperformance or underperformance against their peers, too.<\/p>\n<p>If the performance is well defined and the stock is backed by your own fundamental analysis, simply go long the strength and\/or short the weakness.<\/p>\n<p>This strategy works on stocks in all sectors of the market and on stocks of all sizes.<\/p>\n<p>Of course, there is a marked difference between trading a stock\u2019s momentum and simply chasing expensive stocks (on the long side of the strategy).<\/p>\n<p>The most successful momentum investors buy high-quality names and sell low-quality names.<\/p>\n<p>And while the emotional decisions of investors drive the engine of this strategy, a stock\u2019s fundamentals are the basis of its price movement and should never be ignored.<\/p>\n<p>If sales and earnings are rising, its price will almost assuredly follow. And the converse is most certainly true.<\/p>\n<p>Bottom line: Any way you tackle it, momentum investing is one of the best, easiest ways for the average investor to achieve alpha. And if done right, an investor can handily outperform the broad market with this strategy.<\/p>\n<p>On the hunt,<\/p>\n<p>Jonathan Rodriguez<br \/>\nSenior Analyst, <i>Wall Street Daily<\/i><\/p>\n<p>The post <a href=\"https:\/\/www.wallstreetdaily.com\/2017\/07\/13\/achieving-alpha-momentum-stocks\/\" rel=\"nofollow\">Achieving Alpha Through Momentum Stocks<\/a> appeared first on <a href=\"https:\/\/www.wallstreetdaily.com\" rel=\"nofollow\">Wall Street Daily<\/a>.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>By WallStreetDaily.com Achieving alpha is our mission every day. This is the time to \u201cbuy high, sell higher.\u201d Trading momentum with ease. Also recommended: What the\u2026? There are a million different ways to tackle stock investing. But however you go about picking stocks, your goal should always be to generate alpha. Put simply, alpha is [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-108929","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/108929","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=108929"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/108929\/revisions"}],"predecessor-version":[{"id":108952,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/108929\/revisions\/108952"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=108929"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=108929"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=108929"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}