5 Nasdaq Pullbacks for Traders
Weakness in the markets in the first few hours of trading is likely to result in opportunities for traders to pick up high Short Term PowerRatings stocks as they continue to pull back.
Our approach to short term stock trading is centered on the pullback. We look for strong stocks, stocks that are trading above their 200-day moving averages, and wait for them to show profit-taking or to sell-off as a result of negative news not fully priced into the stock. When we get that temporary weakness in a stock that was otherwise trending higher nicely, we know that we have a potential opportunity to take a trade to the long side.
The caveats are important. We are not looking to buy pull backs in stocks that are breaking down. A stock that, for example, is trading below its 200-day moving average is by definition not a strong stock. So when we see weakness in such a stock, we know that that weakness is likely to continue–at least in the short term.
Our research into short term stock price movement tells us that more of ten that not there is a critical difference between stocks that are trading above the 200-day moving average and stocks that are trading below the 200-day moving average. While there will always be exceptions, our research indicates that buying stocks above the 200-day moving average and only selling short those stocks that are below the 200-day moving average will help keep traders away from some of the worst trades and help move them closer to the kinds of trades they should be taking.
It seems like a small thing, a simple thing often repeated. But there may be few better modifications that you could make to improve the success of your short term stock trading than to simply stop buying stocks that are under the 200-day moving average and to stop trying to sell short stocks that are above the 200-day moving average. The edges, according to our research involving millions and millions of short term stock trades, are simply not on the trader’s side in these situations.
So instead of trying to buy bottoms and sell tops, we encourage traders to focus on buying stocks that are above the 200-day and likely trending upward and selling short stocks that are below the 200-day and likely trending downward.
Which brings us back to the pull back. Many traders are comfortable buying stocks that have already rallied, in hopes that they will continue to rally. This is called the “buy high, sell higher” approach. And while this method of trading has its successful adherents, we feel that the edges are sharper when traders buy during pullbacks in strong trends rather than on breakouts.
A large part of this reason is that by buying pullbacks, traders are far more likely to enter positions at lower levels. Buying stocks after sell-offs is one of the best ways to maximize profits insofar as all a stock needs to do is “recover”–as opposed opposed to continue to outperform–as is the case when trading breakouts.
Our approach, in essence, says that a healthy person who gets sick will likely get better. It is not as fancy or as exciting as other approaches–such as breakout trading which suggests, metaphorically, that a weekend jogger will soon win the Boston marathon. But we believe our approach to short term stock trading–a pure swing trading method, if you will–is one that average retail traders can understand, appreciate and potentially profit greatly from.
All the stocks in today’s report have Short Term PowerRatings of 8 or 9. Our research revealed that stocks with Short Term PowerRatings of 8 outperformed the average stock by a margin of more than 8 to 1 after five days. Stocks with Short Term PowerRatings of 9 fared even better in our historical testing. We learned that 9-rated stocks beat the average stock by a margin of more than 13 to 1 within that same five day period.
Note also the 2-period Relative Strength Index (RSI) values accompanying each stock. We consider a 2-period RSI of 10 or less to be oversold, with values of less than 2 indicating extremely oversold markets.
Euroseas Ltd.
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ESEA |
Quote |
Chart |
News |
PowerRating) Short Term PowerRating 9. RSI(2): 16.00
Yahoo!
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YHOO |
Quote |
Chart |
News |
PowerRating) Short Term PowerRating 8. RSI(2): 1.69
Union Drilling
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UDRL |
Quote |
Chart |
News |
PowerRating) Short Term PowerRating 8. RSI(2): 0.995
Rambus
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RMBS |
Quote |
Chart |
News |
PowerRating) Short Term PowerRating 8. RSI(2): 8.63
Pacer International
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PACR |
Quote |
Chart |
News |
PowerRating) Short Term PowerRating 8. RSI(2): 2.11
Does your stock trading need a tune-up? Read our special, Free Report, “5 Secrets to Short Term Stock Trading Success” for a refresher course on not just why to buy low and sell high, but specifically how you can use intraday weakness in the market to do so. Click here to get your copy of “5 Secrets to Short Term Stock Trading Success” or call us today at 888-484-8220.
David Penn is Senior Editor at TradingMarkets.com.