iShares MSCI Japan (NYSE: EWJ) and Vanguard FTSE Pacific ETF (NYSE: VPL) will head into Thursday’s opening with PowerRatings of 8, making the two ETFs potential buy candidates. These are the highest rated country ETFs. Traders can always find a list of country ETFs with their PowerRatings at the PowerRatings web site. These ETFs are also potential buys under the strategies detailed in our guidebook, High Probability Trading for International ETFs.
ConnorsRSI, Bollinger Bands® (%b) and the 2-period RSI confirm that EWJ is oversold. These indicators and other reliable indicators are available at Trading Markets Analytics where the quote screen for stocks and ETFs provides an immediate overview of key indicators. When multiple indicators show that an ETF is oversold, the probability of a gain is high.
These indicators are additional reasons to consider buying EWJ but PowerRatings can be used as a stand-alone trading strategy.
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 8, on a 5% pullback the next day and selling after the stock closes above its 5-day simple moving average has been profitable 72% of the time with an average gain of 3.9%. Other entries and exits also show high winning percentages and large average gains.
All data is as of the end of day on 8/27/2014.