Gone are the days when data strategies were useful mainly to institutional investors, leaving retail investors to follow in their footsteps. Thanks to financial tools like Trendlyne’s backtesting feature, retail investors now have the same access to data, enabling them to develop investing strategies that have proven to outperform the market in the past.
Screeners help investors identify stocks that excel across multiple metrics. The Trendlyne momentum score, for example, looks at several technical parameters like simple and exponential moving averages, the relative strength index, the average true range, etc across different time frames to identify highly bullish stocks. This scoring system allows investors to shortlist stocks for swing trading.
In this edition of the Chart of the Week, we analyse one momentum screener: ‘Stocks with Highest Trendlyne Momentum Scores and High Volumes’’. This screener searches through the NSE & BSE-listed stocks to identify those with a market cap of Rs 500 crore and above that exhibit positive momentum scores. It is optimised to highlight the top 20 stocks with the highest momentum scores.
The screener backtest, covering the period from January 1, 2022, to March 2, 2024, evaluates the weekly performance of this strategy. The screener has given a cumulative return of 135.8% over two years and two months when stocks are changed weekly. In contrast, the Nifty 500’s cumulative return stands at 37.1%.
The heatmap presents a period analysis, showcasing the strategy's weekly returns from Q1CY22 to Q2CY24. The data reveals that this approach delivered positive returns in 73 out of 113 weeks.
The strategy had its maximum drawdown of 24.8% from Week 2 of Q1CY22 to Week 11 of Q2CY22. The term ‘maximum drawdown’ represents the biggest observed loss from a portfolio’s peak to its lowest point before a new peak is attained.
This strategy is automated and does not have a stop loss set. So the drawdowns here show the maximum loss potential under this approach. Introducing a stop loss can reduce periods of negative returns and lower the maximum drawdown.
Currently, the screener features stocks such as Waaree Technologies, Anand Rathi Wealth, Tourism Finance Corporation of India, Paisalo Digital, and more.
In the course of the backtest, Gensol Engineering gave the highest returns of 169.1%.
Renewable stocks lead in highest returns
Gensol Engineering tops momentum screener performance over two years
Let’s now explore the stocks that have achieved the highest returns over the past two years, as identified by the High Momentum screener’s backtest. Gensol Engineering was part of the screener from June 24, 2022, to September 9, 2022, delivering a return of 200%.
Meanwhile, 63 Moons Technologies entered the screener on December 10, 2021, and exited on January 7, 2022. During this period, the company gave a return of 63%.
Industrial machinery company, Lloyds Engineering Works, remained in the screener for two weeks, from December 24, 2021, to January 7, 2022. During this period, the company gave 60% returns.
Waaree Renewable Technologies, an electric utilities company, was in the screener from January 20, 2024, to February 2, 2024. During this period, its stock price rose by 48%. The company received two orders worth Rs 991 crore and Rs 1,401 crore in February.
Finally, Adani Power was active in the screener for more than a month, delivering returns of 44%. The stock entered the screener on April 1, 2022, and exited on May 6, 2022.
Waaree Technologies and Anand Rathi Wealth post 400%+ returns in the past year
Waaree Technologies leads in one-year gain among active stocks
Let’s now focus on the yearly and quarterly price change % of stocks currently active in the screener. Waaree Technologies' stock price rose by 706% in the past year and 237% in the past quarter. Since its inclusion in the screener on February 9, 2024, the firm has yielded a return of 38.1%.
The capital markets company, Anand Rathi Wealth, reported a 400% rise in its stock price over the past year and a 47% increase in the past quarter. Meanwhile, non-banking financial company Paisalo Digital also rose by 209% in the past year and 93% in the past quarter. It has been active in the screener for the past two weeks as well and has provided 22% returns in this period.
Mangalore Refinery and Petrochemicals surged by 370% in the past year and 92% in the past quarter. In Q3FY24, it posted a net profit of Rs 301.1 crore, compared to a loss of Rs 195 crore in the same period last year.
Lastly, defence company NIBE’s share price rose by 329% in the past year and 126% in the past quarter, following a memorandum of understanding with Munition India to manufacture and supply hardware for ammunition exports.
In conclusion, this screening strategy focused on high momentum has identified stocks that can potentially deliver quick returns, as suggested by the maximum upside of 169%. It also consistently held an average stock count of 19.4, implying diversified investment.
It’s important to keep in mind that these are automated strategies. Investors should do their own portfolio reviews and make adjustments based on the entries and exits of stocks. And as always, past returns don't guarantee future outperformance.
