Screening for Relative Strength

I've been following the relative strength of the stocks that filter into my screens since January of 2003. I've been especially interested in the stocks that shake out as the highest relative strength in my screens on a weekly basis. For the Zweig screen, investing in the highest relative strength stock each week since January 2003 would have resulted in a 5656% compounded return so far. Holy freakin' cow.

It gets better. I hypothesized that if I mechanically invested in the #1 Relative Strength stock only when a MACD chart indicated that the stock was trending upward I could avoid some of the bigger losses. I started tracking what would happen in August of 2004. Less than 3 years later the returns are 4258% so far. Not too shabby.

Last year, I foolishly tried to invest a large part of my portfolio this way (in just one stock) and soon realized that I couldn't take the heat of the daily swings. My worst day zapped me with a 9% loss on my total portfolio. Despite the enormous past returns, I couldn't justify the worry and pain of large losses.

I've got a much more balanced portfolio now and I have taken the advice of traders who are smarter than I am. I no longer risk more than 2% of my portfolio on any one trade (a common rule of thumb with successful traders). The growth has been less exponential, but my sanity is what's important.