Tricks of the Trade: Finding Stocks Ready to Bounce
Every profession has its tricks of the trade. Truck drivers to astrophysicists all have certain tricks, tactics and methods to get the job done in the most efficient and effective way possible. Professional trading is no exception.
Pro traders use certain proven tricks to place the odds solidly in their favor prior to placing any money at risk. One of these tricks is to buy weakness and sell strength. It sounds easy enough, but exactly what does it mean?
Beginners repeat this mantra without fully understanding how to put it into practice. Exactly how weak does a stock need to be and how weak is too weak to risk buying the stock? We have conducted exhaustive, statistically valid testing on 1000’s of trades since 1995 to find answers to this question. What we discovered may surprise you, but it’s a proven trick used by professional traders to place the odds firmly in their favor when picking stocks for short term gains.
The first step is to make certain that the stock you are considering is above its 200-day simple moving average. This makes certain that the stock isn’t too weak to have a short-term bounce. Next, look for companies that are down 5 or more days in a row. There are multiple reasons this makes sense but the most simple is these pullbacks attract bargain hunters and others who look for this scenario often triggering gains over the next 1, 2 days and 1 week time frame. The next step is to drill deeper into the list for shares that possess a 2-period relative strength index of less than 2. (For additional information on this proven indicator, click here). Lastly, only buy stocks that have scored 8 or higher on our Short Term PowerRatings. Stocks meeting all of these criteria have been statistically proven to have increased the odds of trading higher over the short-term.
Here are 2 stocks that fit the criteria for your watch list:
Wilshire Bancorp
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WIBC |
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PowerRating) Short Term PowerRating 10. RSI(2) 1.72. Down 5 plus days
Scientific Games Corp
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SGMS |
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PowerRating) Short Term PowerRating 8. RSI(2) 1.77. Down 5 plus days
Learn more strategies for trading stocks in the short term with a free trial to our PowerRatings! The highest rated stocks have outperformed the average stock by a margin of more than 14 to 1 after five days! Click here to launch your free PowerRatings trial today!
David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.