Swing Trading with PowerRatings: Model Trade of the Week in Bridgeport Education Inc.
Today’s Swing Trading with PowerRatings: Model Trade of the Week takes a look at the two-day, 4% gain in top-rated ^BPI^
BPI is an interesting case. The stock earned a PowerRatings upgrade to 8 on August 2nd. As we’ve noted in past columns, upgrades to 8 can serve as alerts for traders to begin keeping a close eye on a given stock (or exchange-traded fund, for that matter) in case of further upgrades. For conservative traders who like to focus on only the highest rated stocks with the biggest edges – the stocks with PowerRatings of 9 or 10 – this is an approach worth considering.
The following day, BPI earned a one-point upgrade to 9. This meant that for traders looking to trade stocks with PowerRatings of 9 or 10, the stock had moved to the next stage.
At the next stage, after the stock has been upgraded to 9 or 10, traders should decide just how deep of an intraday pullback they will require on the following day in order to add the stock to their trading portfolio.
This tactic is called intraday weakness. And as Larry Connors has described it, intraday weakness is one of the biggest edges you can have as a trader when looking to buy stocks after they have pulled back.
Intraday weakness levels can vary from 2% to as much as 10% for very conservative traders. For purposes of this column, we use a 3% intraday weakness level.
What does this mean? It means that if BPI traded 3% below its August 3rd closing level on August 4th, the stock would be added to the portfolio at that level. Rather than watching the stock all day, limit orders are the best way to set up a trade using intraday weakness.
BPI closed lower on the 4th, and earned another PowerRating of 9 on that day. But the stock did not pullback low enough to trigger the 3% intraday weakness level entry.
But because the stock did earn a PowerRating of 9 on the 4th, a Thursday, traders were in a position to try again. If BPI traded 3% below the Thursday’s close on Friday, then traders could add the stock to their portfolios after all.
The pullback on Friday was much stronger than the one on Thursday. And the stock traded low enough to trigger the 3% intraday weakness level, allowing traders to scoop up shares of the stock at a very oversold level.
And just two days later, shares of BPI were rallying into strength above their 5-day moving average, earning traders more than 4%.
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David Penn is Editor in Chief of TradingMarkets.com