Trading Software and Books Reviews

Large Pullbacks

Using Limit Orders

We also would like to take the above combination, and if possible, buy the stock on an intra-day limit order below yesterday’s close. As we have discussed in the previous lessons of this course, these intra-day drops have increased the average gains per trade going all the way back to 1995.

Short Term PowerRatings

Another way to identify large pullback candidates is to use our Short Term PowerRatings. Look for stocks which have had large 2-3 day increases in their ratings, up to the 9 and 10 levels. A big jump in a PowerRating means the stock has had a significant drop and is entering levels which it has historically risen from. Here’s a good example…

Chart of IRBT

On 9/13/07 IRBT closed at 24.23 and had a PowerRating of 3 signaling that it was oversold. A few days later the stock had a powerful pullback taking it to 17.49 and bringing its PowerRating all the way up to a strong 9. This type of move (from 3 to 9) has historically produced very good short-term trading results. And as we can see here, we can exit either a few days later on a close above the 5-day MA, or exit when the stock rating goes from green (8-10) to blue (4-7). Both types of exits have produced positive returns since 1995, in simulated trading.

PowerRatings Charts

Large pullbacks don’t occur as often as the other pullbacks, but when they do occur, they’ve been the best pullbacks to trade. The simplest way to find these pullbacks is by using the PowerRatings 9’s and 10’s list, and then looking at our new PowerRatings Charts. That way, you can see how far they have pulled back over the past few days and how much the PowerRatings have risen.

Trading Markets

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