Today's
PowerRatings article will look deeper into Rule No. 9 of TradingMarkets 10
Rules For Successful Trading. For a refresher on Rule 9 (Avoid being churned; stay out of
markets/stocks which have low ADX readings.)
go
here.
Here is an easy way to combine
PowerRatings with
The
TradingMarkets Stock Scanner
to speed up the process of finding trending stocks.
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 ADX is not used to determine the
particular direction whether up or down.
Here is a one of my favorite daily scans to find trending
stocks:
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 2500 into the 50-day average volume box (The
volumes are in 100's, so inputting 2500 means you are looking for volume above
250,000 shares traded per day).
3. ADX between 40 and 100.
The inputs should look like this:
Here is a partial list of today's results:
We can then check each resulting stock's
PowerRatings. The stocks rated 7 or higher would be put on your watch
list and for the more aggressive trader stocks rated 3 or lower should be
included on the watch list as well.
Here are several charts from our list of results
that have PowerRatings of 7 or higher:
Delta Petroleum (DPTR | news | PowerRating | PR Charts )
CSK Auto (CAO | news | PowerRating | PR Charts )
Barnes GP Inc. (B | news | PowerRating | PR Charts )
Blyth Inc. (ASPV | news | PowerRating | PR Charts )
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.
Find tomorrow's winning stocks today!
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Attend a free
class on how to use
PowerRatings,
presented by Steve Primo, our Director of Education.
Darren Wong
Associate Editor
darrenw@tradingmarkets.com
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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.
