The question is now how do we generate a list of good stocks or ETFs by filtering, or sorting, or ranking so that we can buy from. By monitoring the ranking changes, we may also find the trend changes among the stocks (sectors, or industry groups)
I have been using the following ranking methods:
(1) The relative strength ranking: ranking by the percentage change in a certain period.
This is what most people do.
(2) I used the ranking by the Jeff Augen’s behavior model. This is trying to “normalize” the percentage changes, and making the comparison between stocks more “fair”.
(3) The “Spatial Sorting” is the subject of this post. It is based upon the “Spatial location” in the diamondwise chart. The location of the current diamond the stock is residing determines the sorting order. The more upper diamond the stock resides, the higher the ranking.
The reason I don’t like to use the relative strength ranking is that it does not consider the chart pattern. For example, consider stock MCD and JPM, as of today (4/26/2010), the one year return for both JPM and MCD are very close to 31%. But if you look at the charts below, which chart is better?
The current diamond the MCD resides is higher than the diamond the JPM resides. In the relative strength ranking, both are same, but in our “Spatial Sorting”, the MCD is ranked much higher than JPM.
Here is the top 5 “Spatial Sorting” from Dow 30 stocks for the last 20 days. If I have to buy stocks from DOW 30 stocks, I would buy these 5 stocks.
I will apply this sorting method to Sectors and Industry Groups tomorrow. Meanwhile, Please send me any suggestions and comments. Thank you.
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