How to Use PowerRatings with the 2-Period RSI

  • January 18, 2007
  • Darren Wong

Today’s
PowerRating
article will focus on combining two powerful indicators: PowerRatings and the
Relative Strength Indicator (RSI). 

The RSI is one of the most popular indicators available to
traders today and can be very helpful in determining short-term market
direction.  Here at TradingMarkets, we only publish strategies that have
been historically backtested and found to give traders an edge in the
marketplace.  That edge has been found in using the 2-period RSI. 

Click here To learn more about the 2-period RSI and our research produced by
Ashton Dorkins and Larry Connors.

As many of our readers know, PowerRatings is another proven
powerful short term directional indicator.  Here is what our research
shows:

PowerRatings performance shows the returns versus
the S&P 500 for the equivalent 5-day hold. The stocks which have had a PowerRating of 8 have outperformed the S&P 500 index on average over the next 5
days by an 5.8-1 margin. Stocks with a PowerRating of 9 have outperformed by a
10.1-1 margin. Stocks with a PowerRating of 10 have outperformed the S&P by
nearly 14.7-1 margin. This potential edge opens up a number of possibilities for
your trading and investing.

One more interesting fact about the
PowerRatings; PowerRatings of 1 and 2 have on average lost money over the next
week. A PowerRating of 1 has underperformed the S&P 500 by a 5-1 margin.
Obviously, you should ideally be looking to be buying high PowerRating stocks
and avoid (or short) low PowerRatings stocks.

Let’s take a look at a long strategy to combine
the 2-period RSI and PowerRatings:

  1. The stock must be trading above its 200-day
    simple moving average (red line in charts below).

     

  2. The 2-period RSI must be below 2.

     

  3. The stock must have a PowerRating of 8 or
    higher for that particular day then buy on the next day’s open.

     

  4. Exit when the price closes above their 5-day
    simple moving average (blue line).

Here are some charts of recent examples in the marketplace. 
Each of these stocks had a PowerRatings of 9 at the time of their entries.


Take-Two Interactive
(
TTWO |
Quote |
Chart |
News |
PowerRating)


Grupo Simec
(
SIM |
Quote |
Chart |
News |
PowerRating)


Spartech
(
SEH |
Quote |
Chart |
News |
PowerRating)


This is just one of the many combinations of PowerRatings and
historically backtested indicators that you can use to find potential setups. 
Also note that the inverse of the above conditions can be used to find short
setups as well. 



Click here to start a free trial to PowerRatings and find stocks which have
historically outperformed the market.


Attend a free class on how to use

PowerRatings, presented by Steve Primo, our Director of Education.

Darren Wong

Associate Editor

darrenw@tradingmarkets.com






Would you like to receive PowerRatings for full month for free? Send us your
PowerRatings strategy and if we accept it for publication, you will receive one
free month of unlimited access to PowerRatings. If you are already a monthly or
annual PowerRatings subscriber, you will receive an additional three months if
we publish your strategy.


Reminder: We are in no way recommending the purchase or short sale of these
stocks. This article is intended for education purposes only. Trading should be based on your own understanding of market conditions,
price patterns and risk; our information is designed to contribute to your
understanding.

 

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