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At the PowerRatings web site, traders can obtain a wide variety of reports with a single click. One of these one-click reports is the Top 10 Highest Volume ETFs. This list shows the sectors and country ETFs that are most actively traded. On most days, the list will include SPDR S&P 500 ETF (NYSE: SPY) and PowerShares QQQ (NASDAQ: QQQ). The remaining ETFs can provide insights into what traders believe are the most important markets to watch. On Wednesday, five of the most active ETFs tracked foreign stock markets. Four of the most active ETFs are oversold with PowerRatings of 9 or 10.
PowerRatings are based on the relationship between price and the 5-day moving average (MA) of price. The further prices move away from the 5-day MA, the stronger the tendency to snap back becomes. PowerRatings uses the 5-day MA and several other components to identify high probability trade entry points. This strategy was thoroughly back tested and the history of over 4 million trades was analyzed.
We know from back testing that PowerRatings can be used as the basis of a trading strategy. Detailed back testing has confirmed that the higher the rating, the greater the one week historical gain has been for stocks and ETFs with that rating. For best results, enter trades on stocks with a PowerRatings of 8 or higher with a limit order 3-7% below the previous day’s closing price. Higher % limit entries have historically shown a greater percentage of winning trades but higher % limit orders also reduce the chance of trade execution.
As an example of a trading strategy that can be used, in the past, buying stocks with a rating of 10, on a 3% pullback the next day and selling after the stock closes above its 5-day simple moving average has been profitable 75% of the time with an average gain of 5.9%. Other entries and exits also show high winning percentages and large average gains.
All data is as of the end of day on 9/17/2014.