Heading into Thursday’s trading, just one country ETF, iShares MSCI South Korea (NYSE: EWY), has a PowerRatings of 8 or higher. EWY will start trading on Thursday with a PowerRatings of 9.
Many international ETFs were up on Wednesday but EWY seems to have been weighed down by disappointing news on exports. South Korea’s monthly export reports are closely watched by traders because of the country’s importance in global trade. Some analysts consider the country’s export report to be a leading indicator of the global economy.
EWY is also a potential buy under variations of the strategies detailed in our guidebook, High Probability Trading for International ETFs. Some variations of these strategies have win rates of more than 80%. The table below shows the average performance for several variations of this strategy.
These strategies can also be applied to U.S. stocks. Test results using SPDR S&P 500 ETF (NYSE: SPY) show win rates of more than 90%.
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 9, 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 4.3%. Other entries and exits also show high winning percentages and large average gains.
All data is as of the end of day on 9/3/2014.