Shout out to Justin B. for asking this question:
“Lately, I have noticed that a stock is highly ranked in the screener one day and then the next day the rank is much, much lower. Is this a bad thing and should I change my filters? Or, is this normal and of no concern?”
With Justin’s question, we decided now would be a good time to create a Newsletter on the subject and help clear up any confusion.
It’s been our experience that even one request can suggest that a larger number of subscribers are wondering the same thing.
When we created Trending Stocks, one of the tools we wanted to develop was a system to assess the quality of the trending stocks. This provides both additional assessment information and helps take the emotion out of the decision process for the DIY investor.
How It Works
Every Stock that is determined to be “Trending”, that is, its price has hit a new high for one of the specific time-frames, 5 to 200 days, is assigned a Trend Strength and a Numeric Rank.
The Trend Strength, the most important of the two, is determined as follows:
- Six different performance features of each trend are measured and given a numeric score.
- All six scores are combined and the total is compared to a fixed scale which sets the minimum requirements for each Trend Strength 1, 2, and 3.
- If the score is higher than the minimum scale for Trend Strength 1, the trend is assigned a strength of 1. If the score is higher than the minimum for Trend Strength 2 but does not reach the minimum for Trend Strength 1, it is assigned to Trend Strength 2, and so on for Trend Strength 3.
This is how each stock is assigned a Trend Strength of 1, 2 or 3.
The next step involves assigning a Rank to each of the trend scores within each Trend Strength.
The Ranks are assigned in numeric order starting with number 1.
The Rank is designed to show that the trend for stock A is, by our calculation, slightly better than the trend for stock B.
Please remember that the Trend Strength is far more important than the Rank.
This is a Screenshot of the Trending Stocks Dashboard. The Today’s Report is seen on the right, showing each stock’s Trend Strength, in this case Trend Strength 1. The Rank is shown beneath the Stock Symbol.
The Detailed Search shown on the left indicates certain filters that can be used to produce the Report. In this case we selected: Display by Rank, Trend Strength 1, Consumer Discretionary Sector, share price between $5 and $650, etc.
There were many more stocks Trending that met the search criteria than three!
There are other tools not visible in this shot, including the copyright protected Trade Risk Calculator.
Let’s draw a comparison to something more familiar to most of us. That is, grades in school.
Imagine, you’re in school and you are an “A” student. The “A” students are actually a group of students whose grade point average is 92 or better.
In addition to being an “A” student, your grade point average is high enough to have you Ranked as the # 1 “A” student in your school. The person with the grade point average just below yours is ranked # 2, etc.
Next week 3 new students move into your school district and are added to your class. They are also “A” students and their grade point averages are slightly better than yours.
As a result, you are now ranked 4th in the class. You are still an “A” student and your grade point average has not declined but you’re now ranked 4th!
So it is with the Rating of the Trend Strengths – 1, 2, 3 and A, B, C students. And the Ranking of each stock within each Trend Strength relates to the Ranking of the students based on grade point average.
This is what Justin was witnessing. A stock that was ranked high one day was ranked lower the next because other stocks started trending that had higher scores.
It is a simple example for something complex but it is, at a high level, the way it works.
I hope this has been helpful. We love questions and we’ll do our best to answer them. Just hit reply to this email and ask yours.
Our goal is to introduce you to concepts you may not have been aware of, in order to be as confident, comfortable and educated as possible, when making your investing decisions.
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