Swing Trading with PowerRatings: Model Trade of the Week in Acacia Research
With stocks gaining ground all week, quality pullbacks for short term traders have been few and far between. Among our highest rated stocks, there have been several days when no stock was able to earn a rating higher than 8.
This can be frustrating for traders and active investors. But high probability trading requires taking what the market gives and not trading when the edges are slight – or absent altogether. This is one of the critical differences between professional trading and active investing on the one hand, and gambling on the other. Professional trading is about taking risk when the edges are on your side – and the bigger the edges, the better. Gambling is simply playing a game of chance, even (if not especially) when the odds are well-stacked against you.
But even if there have been few edges in the stock market for traders looking to take advantage of quantified edges like buying weakness and selling strength, those few edges that have appeared have tended to be profitable ones for the traders and active investors patient and disciplined enough to wait for them and then to buy and sell them properly.
One of the few top rated stocks over the past several days, for example, was Acacia Research (ACTG). Shares of ACTG had been trending lower since to new, year-to-date highs in mid-September. It only took two days of selling before ACTG appeared on our radar screens, earning an upgrade to 8 out of 10 and into the “consider buying” range as it pulled back.
For conservative traders, a further upgrade to 9 or even 10 out of 10, is what puts a stock on a trading watchlist. Stocks earning ratings of 9 or 10, when bought using intraday entry strategies and sold using dynamic exits, have made significant short term gains based on our database of thousands of simulated stock trades going back to 1995.
In the case of ACTG, the stock earned a ratings upgrade to 9 out of 10 on the final trading day of September. And using a basic, 3% intraday entry strategy (more on intraday entries here), traders and active investors were able to take a position in ACTG as it pulled back further on an intraday basis the following session – the first trading day in October.
A 3% intraday entry strategy would have provided for a position at 34.91 on October 3. At that point, the next step simply was to wait for the stock to rally into strength with a close above its 5-day moving average.
In this case, it didn’t take look for buyers to arrive in earnest. Within two days, shares of Acacia Research were back above their 5-day moving average, providing traders and active investors who took advantage of the top-rated stock with gains of more than 4%.
To learn more about trading with PowerRatings, visit us at the link below.
Scan Just One Number Tonight … To Help You Find Stocks on the Move Tomorrow
David Penn is Editor in Chief of TradingMarkets.com