Trading New Highs – Part 2

As we mentioned in the first part of this series, there have been academic studies which have shown that stocks trading near new highs tend to follow through. Click here to read Part 1

We’d like to share two of those studies with you. The first was published in the Journal of Finance – The 52 Week High and Momentum Investing by Thomas George and Chuan-Yang Hwang. In this study the authors stated “the 52-week high price explains a large portion of the profits from momentum investing. Nearness to the 52 week high dominates and improves upon the forecasting power of past returns for future returns.”

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Three years later, two professors from Rutgers University published a study which found the same behavior to be true.

Each of these studies pointed out that because these stocks are so well publicized, the broader public is more aware of them and this awareness often leads to higher prices.

In the next lesson we’ll share additional findings with you. Not only are these professors correct, the gains seen in many of these stocks – when entered correctly – have been substantial for over the past decade.

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About Larry Connors

Larry Connors has over 30 years in the financial markets industry. His opinions have been featured at the Wall Street Journal, Bloomberg, Dow Jones, & many others. For over 15 years, Larry Connors and now Connors Research has provided the highest-quality, data-driven research on trading for individual investors, hedge funds, proprietary trading firms, and bank trading desks around the world.

 

Larry has been published extensively, with titles like How Markets Really Work, Short Term Trading Strategies That Work, High Probability ETF Trading, and The Connors Research Trading Strategy Series including our latest Guidebook High Probability Trading with Multiple Up & Down Days.

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