We can start with the basics of stock markets. A stock trader is an individual or a firm who buys or sells stocks in the financial markets. Stock traders capitalize on high volatile changing markets, by profiting from changes in market price over seconds, days, even weeks. Stock traders can either buy, short, or sell their stock. Buying a stock is when you purchase a stock at a specific price. A popular method to be profitable is buy low-sell high. Shorting a stock is essentially a stock trader betting against the stock to go up in price. To be profitable in shorting a stock, you are hoping the market price declines, and your gains will go up as the price goes down. www.investopedia.com/articles/01/082201.asp
Mutual funds and hedge funds rely heavily on this technique. It is very possible for a stock trader to get very rich in harsh economic times. When harsh economic times hit, it is difficult to get people like the ultra rich to invest their money. Mutual funds are a pool of funds, and give the money manager who invests the funds power to make profits off of the capital investments. Similarly Hedge funds take investors money, usually very high investment minimums, and the managers of the fund takes higher risks and create unordinary returns with the pool of funds. For example hedge fund managers have a 25 million dollar fund pool, and their goal is to have a return of over 20%, so their goal would be to make $500,000 in a specific time, while also taking a percentage fee. They only make money when their investors make money. They utilize shorting, as well as buying low and selling high, diversifying their fund, so knowing that the odds a 52 week high stock goes down is greater would give them a great advantage. http://www.investopedia.com/terms/m/mutualfund.asp
http://www.investopedia.com/terms/h/hedgefund.asp
Here is a useful journal of finance I found online about Momentum Investing. www.bauer.uh.edu/tgeorge/papers/gh4-paper.pdf There is a multitude of information on previous studies. The journal argues that there is evidence that stock prices are not random and that returns can be predicted. It brings up many good points, talking about traders and their reactions to good news. Some traders are slow to react on the good news and some overreact. So when an investor sees a 52 week high what exactly goes through their mind? Traders react differently to the news. Should an investor jump on the train of the 52 week high, or bet against it?
Shorting is important in my study because I want to develop my own method of investing. My plan is to utilize the 52 week high stocks. I want to take a stock that has hit its 52 week high and short it. I am conducting this study because I want to know if the odds of a 52 week high going down the next day are better than the odds of a 52 week high going up. I will take in account the market indices, like the Dow Jones Industrial average and others to compare the number of 52 week highs to the rest of the market.
I became interested in this study because of many reasons. First off I wanted to gain valuable information about the Stock market, so I could use it in my classes, and know more about investing tactics. I also wanted to have the best return in my class in the simulation we are conducting. I am very interested in the stock market and investing, I am planning on majoring in accounting in college, but with that I could work in any financial market I want. Working as an accountant for a hedge fund would be a great job, with a great salary. Overall investing is all about making money, and finding ways to make that money grow. Money is the motive.