Trade the IBD 100 with PowerRatings

According to the Investor’s Business Daily’s website, the components are selected
based on “IBD’s Composite Rating (which includes key measures such as return
on equity, sales growth and profit margins); and relative price performance over
the last 12 months.“

The IBD 100 has consistently outperformed the S&P 500, which means you already
have a watch list that contains stocks likely to outperform the market. By
adding
PowerRatings,
you potentially improve the likelihood of selecting stocks that will outperform the S&P 500
over the next five days.

Steve Primo, TradingMarkets Director of Education, covers trading the IBD 100
with
PowerRatings
in one of his
Advanced Classes. Among the topics covered in Steve’s class are “Trailing
Stops Entry Techniques” and  “Applying a 2:1 Risk/Reward Ratio.”

PowerRating
of 3. Using the “Trailing Stops Entry Technique” you would have sold
short AAPL three days later. Placing a protective stop just above the high on
01/12/06 and applying a 2:1 risk/reward ratio would give you a minimum downside
target of $80.95 which was achieved in two days.

Just a few days later AAPL had a high

PowerRating.
The stock continued to decline, but the “Trailing Stops Entry Technique”
would have saved you from entering this stock for three days. However, on the
fourth day you get a confirmed buy signal. In this case the trade doesn’t work
out so well as AAPL is unable to hit its target price of $79.11. The stock
instead starts heading south and reaches your protective stop where you exit the
trade.

This losing trade provides an important lesson about controlling risk. As you
can see from the chart, AAPL continued to decline and without using a stop loss
this would have been an even bigger losing trade.

Ashton Dorkins

Editor-in-Chief