Here's How Our RSI Indicator Caught This 7.6% Move in 5 Days

Each day, TradingMarkets publishes 7 Trading Ideas for Today, a selection of stocks from our daily indicators. TradingMarkets Stock Indicators are based upon our latest quantitative research, and highlight trading edges backed by our database of more than 7-million historical simulated trades.

Integrated circuit developer Zoran Corporation (ZRAN | Quote | Chart | News | PowerRating) showed up on our 2-Period RSI Below 2 list (explained below) last Wednesday, May 16. This stock is up a whopping 36.7% since the beginning of the year.  This stock definitely has some major momentum behind it and should be monitored for potential pullback opportunities.  Let's look at one strategy to enter into into these types of momentum stocks. 

The main theme of our trading philosophy here at TradingMarkets is to "buy weakness," and that is exactly what you could have done with ZRAN when it appeared on our list last week.  Let's take a look at the RSI indicator and the daily chart to see how things played out.

1-day later, ZRAN closed +2.7%
2-days later, ZRAN closed +5.6%
5-days later, ZRAN closed +7.6%

These are stocks that have a 2-period RSI reading below 2 and are trading above their 200-day moving average. Our research shows that stocks trading above their 200-day moving with a 2-period RSI reading below 2 have shown positive returns, on average, 1-day, 2-days and 1-week later. Historically, these stocks have provided traders with a significant edge. To learn more about our research into stocks that have a 2-period RSI below 2, and how to use this information, click here.

Obviously, results like these do not occur every time, but our quantified research clearly shows that the edges exist during extreme oversold or overbought conditions.

Check out our latest quantified research articles here. If you don't already have a TradingMarkets subscription, click here for a free 7-day trial. Check back daily for more 7 Trading Ideas for Today, and develop your own watchlist of stocks with historically-backed edges.

Darren Wong
Associate Editor
darrenw@tradingmarkets.com

Reminder: We are in no way recommending the purchase or short sale of these stocks. This article is intended for education purposes only. Trading should be based on your own understanding of market conditions, price patterns and risk; our information is designed to contribute to your understanding.