What happens after 2 consecutive strong up days?

Finally decide to do some quant work and found some interesting results.

For the first of hopefully many quant studies,  I shall start by studying what happens after strong up days.  I quantify strong up days as those days that have experienced gains of 1% of more from current day to the next day’s close.  I shall start by studying the STI market.  We can see from below that the returns besides from T+1 are fairly good and are usually twice of average losses. In addition the occurrences of winners are 3:1 of losses. Below I will show results with a filter, for one  I wanted to test for the results for an uptrend which i quantified using the 50 SMA greater than the slower 200 SMA. Vice versa for a downtrend

Total Sample

T+1 T+2 T+3 T+4 T+5
Avg Returns (total) 0.24 2.53 2.57 2.51 2.47
No. of Losses 41 11 16 15 20
No. of Winners 53 82 78 79 74
Avg Losses -0.69 -1.18 -1.76 -1.89 -1.66
Avg Gains 1.35 3.37 3.65 3.59 3.87

When 200 SMA >50 SMA

Avg Returns (total) 0.24 2.77 2.74 2.61 2.65
No. of Losses 46 16 18 19 25
No. of Winners 48 78 76 75 69
Avg Losses -1.04 -1.64 -2.19 -2.06 -1.91
Avg Gains 1.53 3.52 3.85 3.79 4.32

When 200 SMA < 50 SMA

Avg Returns (total) 0.24 2.28 2.41 2.42 2.29
No. of Losses 37 4 11 12 15
No. of Winners 56 89 82 81 78
Avg Losses -0.59 -1.40 -1.21 -1.78 -2.19
Avg Gains 0.79 2.45 2.89 3.04 3.15

Conclusion

As we can see from the results above the returns are significantly better when the 200 SMA > 50 SMA meaning that the strength of 2 up days carries forward in a downtrend. In my sample I also noticed several double digit returns in after 2 up days when the 200 SMA > 50 SMA. Maybe this could be due to short selling covering their positions or just the drying up of sellers and buyers being the main pushers in the market but either way the win loss (returns) ratio, number of winners vs number of losses and general persistence of such a phenomenon makes this a good idea to follow.

My sample period is between 12/28/87 to 30/07/10

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About financialfreezeframe
The curators of curators

One Response to What happens after 2 consecutive strong up days?

  1. Pingback: What Happens after 3 Consecutive 1% Up Days? « Financialfreezeframe's Blog

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