Battle Plan Trade of the Week: DIA Are Forever
Larry Connors Battle Plan is back this week with another winning trade. And once again, we went back to the wellspring of overbought ETFs trading below their 200-day moving averages for the sort of high probability trades that have enabled the Battle Plan to have profitable trades in 12 out of the 13 trading signals received in 2009.
We began looking for these overbought ETFs near the first of the month, as the March rally looked to reach the one-month mark. And while we all have our own ideas about the staying power, or lack thereof, of the current rally, our research remained clear about one thing: there is a quantifiable, short term edge in betting against rallies in markets trading below their 200-day moving averages. This edge has been our bread and butter in the Battle Plan over the past several months and continued to prove accurate this week.
We spotted an overbought Dow Diamonds ETF
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PowerRating) on the first of April and, as the ETF plowed deeper into overbought territory below the 200-day moving average, we both opened and extended a short position in the ETF. By Friday, April 3rd, Battle Plan traders were short two units of the DIA and looking either for an opportunity to add a third and final unit if the DIA continued to rally below the 200-day, or for an opportunity to exit should the DIA close below its 5-day moving average.
On Tuesday, April 7th, traders got the answer in the form of an exit signal, as the DIA sold off and closed just below its 5-day moving average. For traders who took short positions earlier, with an average short entry price of about 79.94, the exit on the close of the 7th had them covering their position at approximately 77.89. The gain was more than 2 points or upwards of 2.5% on the trade.
These are the sort of short term, high probability trades that we look for every day in Larry Connors’ Battle Plan. If you’re looking to add high win-rate, short term trades to your daily trading strategy, then give Larry Connors’ Battle Plan a read before the next market open.
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David Penn is Editor in Chief at TradingMarkets.com.