I was watching Jim Cramer’s Mad Money the other night. I’ve been a Cramer fan since the days before the radio show (What? You don’t remember the radio show?), and I’d gotten out of the habit of watching him.
Cramer had on the CEO of Jardin. After watching the interview, I decided to take a look at the chart of Jardin. How would this company’s stock have looked to a high probability swing trader in the days leading up to the CEO’s appearance on Cramer’s show? What I found was an excellent example of how buying after a pullback – “buying the selling” as Larry Connors calls it – continues to be a winning trading strategy for short term traders.
One of the easiest ways to spot an extremely oversold stock – a stock which, according to our research, has made significant gains in the short term – is to look for a 2-period RSI of less than 2. If that stock with the 2-period RSI of less than 2 is also trading above its 200-day moving average, then you’ve got a stock worth paying attention to.
Here’s what makes “buying the selling” so powerful as a short term trading strategy. Not only do we wait for a stock to reach extremely oversold conditions, but also we want the stock to pull back even more on an intraday basis.
How much more do we want the stock to pull back? That is up to the individual trader, with intraday pullbacks as modest as 2% and as great as 7%, both working well in our simulated testing going back to the mid-1990s. In the example of Jardin, I used a 3% intraday pullback based on the close with the 2-period RSI below 2. That means that with a close of 27.58, my theoretical limit order would be at 26.75.
That trade would have been filled two days later on November 27th. And two days after that, based on exit strategies you will learn about as a student of the ChartPoppers Newsletter, this trade would be exited for a short term gain of 4.89%.
This is what high probability trading is all about: waiting for pullbacks, entering on intraday weakness at oversold extremes, and exiting on strength. And from this core concept, a wide variety of short term trading strategies have been developed using not just stocks, but also exchange-traded funds (ETFs), options, and e-mini index futures.
Keep in mind this is one strategy out of many, many different strategies! We deal with stocks from the NYSE to the OTCBB, and ever thing in the middle! They all have their own unique strategies depending on the situation, which you will learn!
These strategies and many more are taught to our SUBSCRIBERS ONLY in our eMail Newsletter. And not just trading strategies, but professional applications from hedging and risk management to portfolio building and how to develop a trading “business”.
2010 is right around the corner. Why not make a plan for the coming year to be your greatest trading year ever?
