MONEY FLOW DIVERGENCE

This system tries to detect stocks with high money flow divergence. The premise is that the unwinding of the divergence will result in a breakout.Joseph Granville in his book A Strategy Of Daily Stock Market Timing For Maximum Profit originally published in 1960 recognized that volume was the force that moved markets.H e explained that when the accumulation or distribution of volume occurred without significant price change, the market would react much the same way that a tightly wound spring would. At some point, the market would burst in the way that the spring would, and this action would carry price with it and unleash the potential for dramatic price movement over the next short to intermediate term time periods.Initial versions of this system did not perform well because the divergence condition alone detected mainly depressed stocks in a downtrend and most of them continued the downtrend after a brief rebound.

The new version filters out the weak stocks and in conjunction with my custom FVE indicator detects strong stocks in a temporary weakness that are about to break out. You can purchase the Amibroker or Metastock version by selecting the appropriate tab from the menu at the left.

EXAMPLE

On 21/10/19 the system detected divergence between Money Flow and AMD and triggered a buy signal. The stock was up 22.6% during the next 25 days.

SYSTEM PERFORMANCE

This is how the systems performed during the latest 5 and 10 year period until the 2nd of December 2020.
To produce the test results I used Amibroker Pro with the following test parameters:
Max. Open positions: 10
Commissions: $0.01 per share
Volume filter: Limit position to 5% of trading volume
Entry & Exit next day at the open.