Battle Plan Trade of the Week: Taking Profits in Metals and Mining
The recent surge in stocks has provided for great profit-taking opportunities for high probability ETF traders. This includes high probability ETF traders who rely on Larry Connors Daily Battle Plan service to help them find the best trading edges every day. This week, Battle Plan traders and subscribers were fortunate enough to exit a long trade in the SPDR S&P Metals and Mining ETF
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PowerRating) for a gain of more than 3%.
When it comes to high probability ETF trading, our research indicates that the greatest edges are to be found among equity index and country exchange-traded funds (ETFs). We have found that these kinds of ETFs move back and forth between oversold and overbought more reliably and consistently compared to other ETFs.
However, as Larry wrote the morning he directed traders toward the XME trade, it is not often that we get the opportunity to buy an ETF that is as oversold as XME was in the first full week of July. We consider an ETF to be oversold when it closes above the 200-day moving average with a 2-period RSI of less than 25. For three days in a row – on July 6, 7, and 8 – XME had a 2-period RSI of less than 1.
It’s worth noting that XME had been in generally oversold territory for two days before diving into the realms of the truly, deeply, madly oversold. This extreme behavior is what helped alert us to a potential opportunity to the long side in this ETF, and opportunity we seized and shared with our Daily Battle Plan subscribers, getting long the XME on the close of July 8th at approximately 32.88.
Our exit strategy for both ETFs and stocks in the Daily Battle Plan remains the same as it ever was: a close beyond the 5-day moving average. Having bought into the selling of XME, our task then was simply to sell into the buying as and when it occurred.
Buyers returned to the market for XME over the next few days, pushing the ETF up over its 5-day moving average on a closing basis on the afternoon of July 13 for a gain of more than 3%. As I write, XME is still moving higher.
Not every trade in the Daily Battle Plan will work out as well as this trade in XME. But our high probability ETF trading strategies in the Daily Battle Plan has resulted in 22 winning trades with only 4 losing trades in 2009.
If you would like to make high probability ETF trading a part of your short term trading business in 2009, then click here for a free, one-week trial subscription. With pre-market analysis including audio commentary from TradingMarkets founder and CEO Larry Connors, specific trading recommendations using high probability set-ups, and a model portfolio to help you see and track trades, come find out what the Daily Battle Plan can do for you.
David Penn is Editor in Chief at TradingMarkets.com.