Swing Trading with PowerRatings: Model Trade of the Week in Digimarc Corporation

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A PowerRatings upgrade to 9 is a significant event in the life of a stock.

Historically speaking - going back to 1995 - stocks that earn PowerRatings upgrade to 9 have tended to make significant short term gains. This makes stocks that earn PowerRatings of 9 or, even better, our highest rating of 10, the kind of stocks that short term swing traders should keep on their stock trading watch lists.

There are many different ways to trade these top rated stocks. But one of the best quantified strategies is to buy the stock not on the day it earns the upgrade to 9 or 10, but on the following day if the stock trades lower on an intraday basis.

Here's an example of how it works. Shares of Digimarc Corporation ( DMRC ) earned PowerRatings of 8 on September 1st. This two-point upgrade came as the stock pulled back for a third day in a row above the 200-day moving average.

The following day the stock closed lower for a fourth day in a row. This fourth consecutive lower close above the 200-day moving average and increasingly oversold conditions earned DMRC a further PowerRatings upgrade to 9.

Here is how adding the intraday entries strategy to PowerRatings works.

Before trading begins on September 6th, the intraday entries strategy says to place a limit order between 3-7% below the previous day's close (the day of the upgrade to 9). If the stock does not pull back further, then the trade will not be filled. But if the stock does pull back further, the trader is able to take a position at a very oversold level, a level from which the stock has tended to make significant short term gains, historically speaking.

Using a 3% intraday entry level, for example, a trader would have been filled on September 6th near the lows of the day at 30.77.

Once in, how does a trader get out? Our research provides for a number of different exit strategies. But one of simplest, most effective and most dynamic exits is a close beyond the 5-day moving average.

In the case of our hypothetical Digimarc Corporation swing trade, the exit signal would come swiftly as shares of DMRC rallied by more than 3% the following day to close above the 5-day moving average.

But for the trader who used an intraday entry strategy the theoretical gains would be even larger. Taking a position intraday on the 6th at 30.77 and exiting on a close above the 5-day moving average a day later, this swing trader would have realized a gain of more than 8%.

A good gain of more than 3% compared to a great gain of more than 8%. Just by adding the intraday entry strategy to PowerRatings.

If you are looking for the kind of stock lists that are based on quantified research rather than the opinions of analysts and pundits, then you owe it to yourself to learn more about PowerRatings. To start your free, no-obligation trial to PowerRatings - including stocks, ETFs and leveraged ETFs, visit our PowerRatings page at the link below.

Scan Just One Number Tonight To Find Stocks on the Move Tomorrow

David Penn is Editor in Chief of TradingMarkets.com



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Stocks

Referenced Stocks: DMRC

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