Wishes, Wives’ Tales and Wisdom: 3 Wise Stock Picks
The stock market is full of wishes and old wives’ tales but unfortunately is short on wisdom for the majority of participants. Losing short-term traders seem to do the same thing over and over achieving the same dismal results time and time again. The old wives’ tale that buying a stock after it has made a series of up moves is a prudent decision is one such habitual pattern of losing traders. While intuitively this tactic appears to makes perfect sense, our extensive studies have proven that it is counterproductive and actually lowers the odds of success.
It’s time to stop wishing and following old wives’ tales if you truly want to improve your short-term trading. Following statistically proven, result driven data simply makes more sense if you want to win the trading game. Â Â The truth is a stock is more likely to climb after a series of down days or lower lows than it is to continue climbing after a series of up days or higher highs.
However, it’s important to note that there are several caveats to this finding. First the stock needs to trade above its 200-day simple moving average to be considered. This assures that shares are not in a death spiral into the abyss where few stocks ever return. Secondly, we look at stocks whose 2 period Relative Strength Index RSI(2) is less than 2. Most traders use the standard 14-period RSI but our studies discovered that there was no edge at this setting of the indicator. Â While RSI(2) has proven to produce significant edge to the short-term trader. (For additional information on this proven indicator click here) The final caveat is we only look at stocks for short-term gains that have an 8 or above Stock PowerRatings.
The stocks that fulfill each of the above caveats have proven in extensive, statistically valid studies to possess solid odds of increasing in value over the 1 day, 2 day and 1 week time frame.
Here are 3 names that have falling back and fit each of the caveats for your short-term watch lists:
Layne Christensen
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THQ Inc
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TransDigm Group
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Learn more strategies for trading stocks in the short-term with a free trial to our PowerRatings! The highest rated stocks have outperformed the average stock by a margin of more than 14 to 1 after five days! Click here to launch your free PowerRatings trial today!
David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.