PowerRatings Profit-Taking and Patience
A great many traders have spent the past few days kicking themselves for having not bought stocks before the market’s recent surge. But short term traders who rely on our PowerRatings know that when stocks are ramping higher, the time is nigh not for worrying, but for profit-taking.
As traders who buy the selling and sell the buying, we see the current strength in the stock market as an opportunity to ring the register, rather than to become over-eager about initiating new trades. In fact, believe it or not, but PowerRatings traders are more likely to spend their time analyzing potential short candidates trading below their 200-day moving averages than they are to look for instances to chase runaway, overbought markets trading above their 200-day moving average.
But what moments like this really mean for PowerRatings traders — beyond taking profits in high PowerRatings stocks that were purchased on pullback — is patience. Think of it this way: old baseball hands have insisted for decades that the easiest way to improve hitting isn’t by getting stronger wrists and forearms or by learning to move the bat faster through the zone, but instead to learn how to wait for the right pitch and, when it comes, to go after it with everything you’ve got. In baseball, according to the old-timers, it is opportunity that makes for greatness.
We believe something similar when it comes to high probability trading and PowerRatings. Some days, our Top 25 PowerRatings list is replete with 9- and 10-rated stocks with single-digit or even below 1 2-period RSIs. This, in baseball parlance, is a lazy fastball left out over the plate and we expect PowerRatings traders to act accordingly when such moments do arrive (arguably, we just emerged from such a “lazy pitch” moment that developed late last week.
If you find yourself getting antsy about not trading more frequently, if the idea of letting a few pitches go by makes you squirm, beware! These are the classic symptoms of overtrading and while overtrading can get any trader into trouble, overtrading is a particular bane of high probability traders — in large part because high probability requires patience in order to work
Patience may not be fun, but it is a key to profits where high probability trading is concerned. If you are fortunate enough to have short term trading gains, then take advantage of the current strength to take profits. And if you’ve missed the opportunity to buy high PowerRatings stocks on pullback, don’t despair (and more importantly, don’t chase!). The current overbought nature of the market suggests strongly that another round of pullbacks, and another round of potential trading set-ups, may not be very far away, at all.
Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of more than 14 to 1 after five days. Click here to start your free, 7-day trial to our Short Term PowerRatings!
David Penn is Editor in Chief at TradingMarkets.com.