Trend signals

Investtech has published a research report looking at return after a stock has entered a trend. A stock entering a rising trend was defined as a buy signal, and the research showed that stocks that enter a rising trend in the medium term have yielded significantly better return than benchmark in the same period of time. Stocks that enter a falling trend triggered a sell signal, and these performed lower than benchmark. Figure 1 below from the research report illustrates this. Read more about the report here.

We created the product Trend signals in order to simplify the process for Investtech’s customers, enabling them to take advantage of the effects demonstrated in the research report. The table shows stocks which have recently entered a trend. The column “Days in trend” shows how many days the stock has been in the trend. When “Days in trend”=1, this is the time when the buy signals in the research report were triggered.

As in the research report, only stocks with an average liquidity of more than 0.5m NOK per day are included. This means that stocks with lower liquidity, which can therefore be hard to trade, have been removed. The research report defined a rising trend as a trend having a rising rate of more than 10 degrees, and a falling trend as having a rising rate of less than -10 degrees. The same parameters are used in the product Trend signals.

Trend signals are shown for rising and falling trends, and you can choose which time perspective from which to pick the trends, i.e. short term, medium term or long term charts. The tables are updated with any new trend signals every day.

The research report dealt with trend signals in the medium term perspective, but we have no reason to believe that the same conditions will not be true for the short term and long term charts as well.

Figure 1: The chart shows average price development five days before a signal and one year after a signal for Norwegian stocks in the period 1996-2009. The blue line is buy signals, the red line is sell signals and the black line is average price development for benchmark in this time period.