*stocks of companies that have received acquisition bids are omitted.
I often take a look at the list of the best performing stocks year to date. Early in the year, the list is full of stocks that have bounced from the drain. Such type of stocks rarely stay long on the list and generally provide good shorting opportunities as they approach previous zones of strong resistance. As the year rolls, new leaders emerge and eventually some of them will be the best performing stocks for the year. It is useful to set up a minimum liquidity requirement (at least 100k average traded volume per day) and also minimum price requirement to isolate penny stocks. (I use $2.00 as a minimum price since too high price requirement will cut the majority of the best performing stocks for the year at their initial stage of price appreciation).
Given the current market environment, I prefer to trade, not to invest in the stocks that appear on this list as I use trailing stop to follow momentum. How to recognize which stocks from the list could be good short and which – good long ideas? Take a look below the surface. What is driving the price of the stock? It is all about expectation and/or speculation for strong earnings in the future. Those expectations are usually based on an exciting new product, recent history of strong earnings and sales growth, industry relative strength, legislative change. These are usually good long candidates. Severely beaten down stocks that try to bounce from the ground after serious decline, usually provide good short opportunities as they approach their 200 day moving average and meet strong resistance there.
From a technical perspective, you would be in better position if limit your long ideas to stocks that make higher low and higher high above their 200 day MA as you will enter on higher high and trail with a stop to protect profits and limit downside. Short ideas should come from stocks that are finding strong resistance just below their 200 day MA and are reversing back from there after making lower high. Everything should be looked in the perspective of the general market. When the market is going up, I concentrate on long candidates and vice versa.
The best performing stocks YTD is a very simple system for generation of trading ideas and it could be a basis for huge returns if proper money management rules are applied. There is a profound difference between good long and short trading idea and successful long or short actual trade. For the latter you need strict money management rules, which include, but are not limited to: proper position sizing, cutting losses short and letting winners run.
Alternative momentum screens for the above mentioned idea generation method could be:
Stocks up 50% or more in a month
Stocks up 200% or more from their 52 week low
Stocks at 50 day highs
Again, don’t forget to add liquidity and minimum price requirement filters.