TradingMarkets 10 Rules for Successful Trading: Rule 9
Today’s
PowerRatings article will focus on Rule No. 9 of TradingMarkets 10 Rules For
Trading. Rule No. 9 states:
Avoid being churned; stay out of
markets which have low ADX readings.
The Average Directional Movement Index
(ADX) measures the strength of a trend. When the 10 period ADX
of the market or a stock drops below 20, it usually means the security has
become trend-less. And as we all know, it’s very, very difficult to make money
in a trend-less market. Our research has found that it is best not to trade in
securities while they have 10-period ADX readings under 20. And, we have found
that the higher the ADX, the better the range the security will likely be.Â
Readings above 40 indicate a strong
trend. Note that ADXÂ is not used to determine the
particular direction whether up or down.Â
Here are seven weekly charts of stocks that have ADX readings
above 40 and
PowerRatings of 7 or above and 3 or below. Next
week I will share a strategy on how to use our stock scanner to find these types
of stocks quickly and simply. The TradingMarkets.com stock scanner can be
found
here.
Business Objects
(
BOBJ |
Quote |
Chart |
News |
PowerRating)
Medicis Pharmaceutical
(
MRX |
Quote |
Chart |
News |
PowerRating)
Pall Corp.
(
PALL |
Quote |
Chart |
News |
PowerRating)
Satyam Computer Svcs
(
SAY |
Quote |
Chart |
News |
PowerRating)
UnumProvident Corp.
(
UNM |
Quote |
Chart |
News |
PowerRating)
Helen of Troy Ltd.
(
HELE |
Quote |
Chart |
News |
PowerRating)
Wolverine World Wide
(
WWW |
Quote |
Chart |
News |
PowerRating)
Â
From 1995-2005,
stocks with a PowerRating of 8 have outperformed the S&P 500
index on average by an 8.3-to-1 margin, while a PowerRating of 10 doubles that
performance to 16.3.
PowerRatings also help indicate a stock’s
downside as well as timely short-sale entry points; PowerRatings of 1 and 2 have
on average lost money over the next week. A PowerRating of 1 typically
underperformed the S&P 500 by a 5-1 margin. Obviously, you should ideally be
looking to buy high PowerRating stocks and avoid (or short) low PowerRatings
stocks.
You can
attend a free
class on how to use
PowerRatings,
presented by Steve Primo, our Director of Education.
Click here to
try
PowerRatings for yourself, risk free.
Darren Wong
Associate Editor
Want a free month of PowerRatings?
Send us your PowerRatings
strategy and receive one free month of this exciting trading tool. If you are
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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. Controlling risk through the use of protective stops is critical.
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