BattlePlan Trade of the Week: 8% in Five Days
To say that it has been a tough few weeks for traders would be an understatement. But the past five days, which saw the markets make a short term bottom and a fairly powerful bounce on Monday, were just enough to allow us to exit one of the positions we picked up during the downturn – for a nice 8.69% profit.
The majority of trades – particularly stock trades – that we offer in the TradingMarkets BattlePlan for stocks are long trades. What this means is that as stocks move lower, we are looking to buy and as stocks move higher we are looking to sell.
At times, especially over the past several weeks, this has meant buying into some markets that were selling off aggressively. But our research has indicated – and our trading results continue to show – that when we are picking the right stocks under the right conditions – this approach to swing trading tends to produce a high win-rate and minimal drawdowns.
Consider our Trade of the Week for this week: Volcano Corporation
(
VOLC |
Quote |
Chart |
News |
PowerRating), which we spotted last Tuesday. At the time we noticed VOLC, the stock was trading above its 200-day moving average, but had closed lower for six consecutive days. We have done research on stocks that are trading above their 200-day moving averages and have fallen for five or more consecutive days, and know that these stocks have tended to produce positive results in one-day, two-day and one-week timeframes. Combined with VOLC’s 2-period RSI of less than 1 and Short Term PowerRating of 9, VOLC appeared to be just the kind of stock that we wanted to buy as it moved lower.
Long VOLC at 14.72 on October 7th, we waited – more or less patiently – for the inevitable strength that would take us out of this trade. On Friday, October 10, after VOLC has slid to as low as 12.00 on an intraday basis, the stock opened lower and closed higher. It was the first true sign of strength in the stock of any kind since late September.
Follow-through on Monday was impressive and powerful, sending VOLC soaring above its 5-day moving average — our standard exit for Battle Plan swing trades. VOLC finished a very bullish Monday with a close of 16.00. Traders who exited on the close picked up 1.28 for a gain of more than 8% after five days.
As I note every week in this column, not every trade we offer will work out as well as VOLC did. But what trades like VOLC remind us is that long-oriented trading strategies can be very effective in a number of trading environments – including the middle of a broad-based selling frenzy. As the saying goes, it is often the trades that are the hardest to take that turn out to be the trades most worth making.
If your trading has gotten tougher over the past weeks and months, then consider a free trial to our TradingMarkets Battle Plan for Stocks. Every day we’ll provide you with incisive, before-the-bell commentary and analysis on the day’s markets to help put your trading in context. We’ll give you suggested entries and exits for trade opportunities that may be only hours away. And we’ll give you what many other people can’t: model-driven percentages so that you know the historical win rate going back to 1995 for every single trade idea—