Here’s a new way of using stochastics
One of the great things about
PowerRatings
is that they can be used in so many different ways. Once you
understand the basics, you can combine them with a myriad of trading styles.
Each day I’m going to highlight some of the different ways you can incorporate
PowerRatings
into your existing trading strategies and hopefully teach you a few new ones
along the way. I’ll also show you some of the ways our members are using
PowerRatings
to improve their trading.
In today’s example, let’s take a look at
Daktronics
(
DAKT |
Quote |
Chart |
News |
PowerRating).
One of the most useful ways of using Stochastics
is to look for divergences. A positive divergence is formed when a stock makes a
new low but the stochastic indicator fails to make a new low. This means that
selling pressure is decreasing and is an alert that prices may be close to
reversing (heading higher). A negative divergence is exactly the opposite —
price makes a new high but the indicator fails to confirm that high. This means
that buying power is decreasing and is a sign that prices may be close to
reversing (heading lower).
The chart of DAKT is a great example as we see
both scenarios. Notice how in January when DAKT made a new high but the
stochastic indicator failed to get even close to the level it reached at the
prior high (red lines). This warning sign
was followed by a 14% decline over the next 13-days.
Then in February, DAKT dropped sharply to form a
new low; however this time the stochastic was well above the level it reached at
the prior low (blue lines). This created a
positive divergence, a sign that prices may be close to reversing (going up).
Once again, by combining this knowledge with
PowerRatings
you can add a statistical edge to your trading. As
you can see in the chart, just when DAKT formed a positive divergence it also
recorded a
PowerRating
of 7. By using both tools together you now have a
high probability setup and can be confident of taking a long position. The
ensuing 5-day gain was over 26%.
Click here
to take a free trial of
PowerRatings.
You can also
attend a free
class on how to use
PowerRatings
presented by Steve Primo, our Director of Education.
Ashton Dorkins
Editor-in-Chief