Calling the bottom (and top!) can be exhilarating; buying at the low, watching the profits rise, closing at the high. We saw several instances of this strategy paying off this week, with sharp negative reactions followed by swift recovery rallies. Cobham opened -20% yesterday to finish -10%; BP opened -2% this morning but it’s now positive; Wizz Air opened -9% on Weds but closed -5% and Vodafone has rallied 4.6% from mid-week lows.

The risks involved in calling the bottom may be higher, but then so are the rewards. Hence why we make it our business to highlight to clients both these shares price plunges, offering big payoffs, as well as those already showing signs of a turnaround, hopefully involving less risk. Trade opportunities to satisfy clients of varying risk appetites.

All day every day we, in research, scour the charts of the most popular shares. We filter huge amounts of data for quantitative signals, we analyse corporate news, read-across and live share price reactions. In short, we do the grunt work for clients so they don’t have to, bringing them the type of opportunities they like to trade.

Need to know which shares are down 20% from this year’s high? Not a problem. A list of shares trading all-time lows for the chance of a bagging a bargain? Easy. Who’s fallen most over the last week? Who’s tanked this morning? Check your inbox.

But the above isn’t for everyone. There are those who want a bit more proof that a share price has actually bottomed out before jumping on board. Hence why we also look for the above style of opportunities, but filtered for those showing genuine signs of a bullish turnaround.

This might, for example, involve waiting for confirmation of it holding above a support level for 3 periods (e.g. 3 mins, 3 hours, 3 days, depending on your trading/investment time-frame), increasing the chances that the shares have actually bottomed out. Perhaps it means seeing a bit of a bounce and a break above the last minor high, clearing a hurdle and adding some distance from the low. This waiting comes at a cost, of course, decreasing the trade’s maximum profitability. On the flip-side, as the profit potential falls the potential for success should rise.

Would you prefer, for example, a 50% chance of making £1,000 profit or a 70% chance of making £700? Ironically the monetary result is very similar (£500 vs £490), but the trade risk of the latter should be less. Waiting for a 3% bounce may well eat into the 10% maximum profit on offer between the low and the high, but it still leaves 7% upside available and, hopefully, a more favourable probability of the trade being successful.

Best of all, we also do all of the above in reverse, making it doubly beneficial. Because it helps clients to not only identify potential resistance, allowing them bank maximum profits, but also allows them to call the top for a profitable short opportunity. Two birds, one stone.

A quick look at our the Week in Advance publication shows another healthy docket of companies reporting financial updates. Might the high street Banks offer opportunities to buy in on a decline? Perhaps they’ll fulfil one of our other trade opportunity criteria, such as momentum (up/down), breakouts or breakdowns, trading ranges, etc.

If you fancy a helping hand identifying which shares have risen/fallen sharply, may be near a top/bottom or offer another potential; tradable opportunity, get access to our award-winning research and allow us help you evaluate what you are doing and how we can help you do it more effectively. No advice. Just quality assistance from the friendliest team in the City.

Enjoy the – hopefully cooler – weekend.

Mike van Dulken, Head of Research, 27 July 2018