Using Velocity and Behaviour to Select Stocks for your Portfolio

Posted: 20 November, 2017
Source: P2017 SYD Available to: Members

Like many traders one of the main requirements that we have when looking for stocks to purchase is that they rise strongly in price to maximise capital gain. Another requirement is that they are well-behaved so that this price rise is smooth and regular rather than thrashing about and triggering stops. A third requirement is that any stocks we own should be financially strong to avoid as far as possible those most likely to crash and burn.

To this end we have created the indicator of Velocity. It measures the rate of price growth based on the compounding rates of price increase from three separate time frames. A second indicator we have called Behaviour, that assesses a type of volatility that is not captured by traditional methods, allows us to select stocks where price growth is smooth. These two indicators, together with criteria that limit us to stocks that are financially sound form the basis of several systems that we use to build our portfolios.