From Charles Dow, Robert Rhea and Richard Schabacker — all three early pioneers of stock market technical analysis — four driving principles of momentum trading have endured the test of time…
And still guide technical trading decisions to this day.
Each of these four principles of momentum trading can be quantified mathematically... And most, if not all, mechanical trading systems are based on at least one of the four.
One thing I’ve learned over the years is stocks tend to get volatile when they approach and break through a 52-week high/low price point.
The main reason for this volatility is because the one-year high and low is the center point for many traders, including professional hedge and mutual funds that put a lot of weight into the 52-week high/low price.
“What a valuable lesson I am getting from you. Thanks Roger!”
Choon L.
Backtesting allows a trader to simulate a trading strategy using historical data to generate results and analyze risk and profitability before risking any actual capital. A well-conducted backtest that yields positive results assures traders that the strategy is fundamentally sound and is likely to yield profits when implemented in reality.
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