Note: This article is courtesy of Iris.xyz
By Ben Jones, Sr. Analyst, Dorsey, Wright & Associates, a Nasdaq Company
Ah, “the thrill of victory and the agony of defeat.” For the next two weeks, millions of people will watch as the world’s top athletes compete for the gold. Whatever the final standings, every man and woman who has earned one of the few coveted spots on their country’s team is thrilled to be where they are today. The honor is not only the culmination of years (or even an entire lifetime) of hard work and dedication, but it is also dependent on each athlete’s current performance. Right here. Right now.
While investing may not share the same level of personal drama as international competitions, choosing the best stocks within your portfolio should follow a selection process that’s just as rigorous, and the ultimate winners should be chosen based on how they perform against the competition. Right here. Right now. Just like top athletes, to remain on the team, each stock has to continue to win the “heat,” outpacing the competition, including direct competitors in their own industry, as well as stocks in other sectors. Companies in technology, basic materials, energy, financials, and more are in a constant battle every day, and it’s anyone’s guess which sectors and which stocks will be next year’s—or even next week’s—winners.
Fortunately, at Dorsey, Wright & Associates, a Nasdaq Company, we use a methodology that simplifies the process of identifying the strongest stocks to make it easier than ever to pick the best players. By focusing on two specific traits, momentum (which is synonymous to relative strength) and trend, we identify today’s winners, while sending off those stocks that are losing momentum or trending downward to watch from the stands. The competition is fierce, and with new players constantly entering the field, every stock has to remain at peak performance to earn their spot.