Use PowerRatings with the ADX to find trending stocks
Are you a swing trader that focuses on trending stocks?Â
If so, you might spend countless hours searching through charts looking for
stocks. Here is an easy
way to combine
PowerRatings with with
The
TradingMarkets Stock Scanner
to speed up the process.
How do you determine the strength of a trend?Â
The ADX (Average Directional Movement Index) helps us to
measure the strength of a trend. The ADX is measured on a scale between 0
and 100. The higher the number the
stronger the strength of a trend. Readings above 40 indicate a strong
trend. Note that ADXÂ is not used to determine the
particular direction whether up or down.Â
Here is a one of my favorite daily scans to find trending
stocks to trade:
1. Stock price between $15 and $25.
2. I look for stocks that
have a good degree of liquidity, so that entries and exits can be made more
easily. Therefore, I inserted 5000 into the 50 day average volume box (The
volumes are in 100’s, so inputting 5000 means you are looking for volume above
500,000 shares traded per day).Â
3. ADX between 40 and 100.
The inputs should look like this:
Here is a list of results:
We can then check each resulting stock’s
PowerRatings. The stocks rated 7 or higher would be put on your watch
list.
From 1995-2005, stocks rated 7 have
outperformed the S&P 500 by a better than 4-1 margin over a five-day period.
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.
Reminder: You should not consider any of these stocks as
“buy candidates.” Rather they are a starting point in your search for strong
stocks that fit your own strategy’s trading criteria.
Here are a few weekly charts from stocks rated 7 or
higher:
IDTI
(
IDTI |
Quote |
Chart |
News |
PowerRating) has soared over 20% since July. The
trend is definitely up and is currently consolidating around the $16-17 level.Â
BEBE
(
BEBE |
Quote |
Chart |
News |
PowerRating) has also had incredible run in the past few
months rising over 30%. IDTI and BEBE should be placed on a watch list and
monitored.
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
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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.