𝗛𝗼𝘄 𝘁𝗼 𝗶𝗱𝗲𝗻𝘁𝗶𝗳𝘆 𝗵𝗶𝗴𝗵 𝗽𝗿𝗼𝗯𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗽𝘂𝗹𝗹𝗯𝗮𝗰𝗸 𝘁𝗿𝗮𝗱𝗲𝘀 𝗳𝗼𝗿 𝘀𝘁𝗼𝗰𝗸𝘀 𝘄𝗶𝘁𝗵𝗼𝘂𝘁 𝗰𝗮𝘁𝗰𝗵𝗶𝗻𝗴 𝗮 𝗳𝗮𝗹𝗹𝗶𝗻𝗴 𝗸𝗻𝗶𝗳𝗲
When it comes to stock trading, it’s possible to have hundreds of stocks forming a pullback trading setup at the same time.
So the question is:
How do you know which stocks to buy and which to avoid?
Well, the secret is to focus on stocks which have increased the most in price over the last 12 months.
Why?
Because these are stocks likely to outperform the market (and it’s been proven in theory as well according to the paper Returns to Buying Winners and Selling Losers by Jegadeesh and Titman).
So, how do you apply this to your trading?
1. Rank stocks according to their rate of change (ROC) over the last 50-weeks—from the highest to the lowest
2. Look for a pullback trading setup on stocks with the highest ROC value. If there isn’t, then move to the next stock (with a lower ROC value)
3. The top 5 stocks with a valid pullback trading setup are the ones to focus on
Pro Tip:
You can use a platform like Thinkorswim to help you rank the stocks, and it’s free.
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