I use a group of powerful techniques for short term trading of stocks. I find them to be very powerful so I use them just about every day. It is a great series of techniques if you want to make a living as a trader or make a nice second income.
This group of techniques are called Mean Reversion. What does it mean?
It simply means that the price of a stock will go back to its average. Let me give you an example that happened to me last week.
The chart show FXI which is an ETF which mimics the Chinese stock market. You can see that the price was coming down early in the period. Now look down and you will see a single black bar. That is a buy signal from my technique ETF Ecstasy (EE).
EE is telling me to buy on the close that day. So I did.
The market then took off, skyrocketing much higher.
The first profit taking point is the five day moving average which is the thin red line. You can see that the price closed above that right away. But I kept the position because it closed near the high of the day, thus showing a lot of strength.
Great trade! Lots of profits!
So why buy at that point?
Mean Reversion simply states that a market that has moved away from the average will bounce back to that average. You can see that happened perfectly here.
But it is important to only trade in the direction of the trend. EE uses the 200 day moving average to determine the trend.
So we had a bull market. Check.
The market moved sharply against the trend. Check.
Buy and look for the market to move back in the direction of the trend at least a little bit. Check.
I’m going to explain this Mean Reversion concept in futures emails to you because I think it is amazingly profitable.
I also just launched a brand new service called Smith’s Stock Swing Trader (SSST). I’m really proud of this service because it is so easy to use and, so far, incredibly profitable.