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In a message dated December 15, 1999 TWA7663@xxxxxxx writes:
> It seems to me that a person could develop a good trading system based upon
> the relative strength of these stocks. IOW one could switch in and out of
> the stock that is showing the greatest relative strength. Another system
> would be to develop a "spread" system which would simultaneously go long the
> strong stock and go "short" the weak stock.
>
> Has anyone done this or done research on it?
I have done research on this, and the idea has a lot of potential.
The problem is to define "strong" and "weak" in a way that lends
itself to mechanical implementation. This involves knowing what
time frame you want to trade. Often a stock that is strong in one
time frame will be weak in another, prompting one to make a
judgment call. Bottom line there is much merit here, and the
trading departments at brokerages do this (called "pairs trading")
but there is very little that I have found written on the subject.
Neal
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