Here's how to find low priced stocks with an edge

Would You Like To Find Low-Priced Stocks With An Edge? Here's How

Trading low-priced stocks is risky. But many traders are attracted by the large percentage swings that can occur in stocks trading under $10. This article is about a tactic that can be used to identify low-priced stocks that have a potential edge. But we can't emphasize enough that trading these stocks is highly risky and should only be considered by those who have the ability to handle the increased volatility and risk.

With that said, let's take a look at an interesting PowerRatings setup that occurred in Axcelis Technologies (ACLS | Quote | Chart | News | PowerRating), a stock that has been trading between 4.50 and 8.00 since the beginning of the year.

What is interesting is that we not only saw a PowerRating of 9 on Monday, Feb 6, but by Tuesday, Feb 7, the PowerRating went deeper into the green and became a 10.  This is the kind of action that should prompt you to immediately pull up a chart.

On Tuesday, the day we had the PowerRating of 10, this is the chart you would have seen:

As you can see, ACLS had been in a 2-week downtrend at the time when we got our PowerRating of 10.

Of course, this alone, is not enough to formulate a plan. But our perspective is greatly improved when we look at the big picture. Let's look at a longer term chart.

Over the past three months ACLS has been trending higher. When thePowerRating of 10 had been signaled, the stock was pulling back from that uptrend.

Given this, a trader might then a look at other factors where there is a basis for buying this pullback. As it happens, ACLS is a semiconductor stock. And as you might be aware, the Semis have been trending strongly higher since last October. Also supporting a potential trade was the short-term rally in the overall market that unfolded on Feb 8 and 9. Here's what happened over the next two days after we got our PowerRating of 10 signal.

Over the next two days ACLS saw a gain of over 27%.

PowerRatings is a tool that searches through a large database of stocks in order to identify those that have a potential edge over the next 5 days. Not only do we find high profile companies such as Microsoft (MSFT | Quote | Chart | News | PowerRating) and Apple (AAPL | Quote | Chart | News | PowerRating), but you will be able to uncover lesser known low-priced stocks which offer unique opportunities. Again, you must be mindful of the risk. One way to deal with it is to track the 9s and 10s that you identify and paper trade them for awhile. For example, on Feb 7 other low-priced stocks that trigged 9s and 10s include: (LPTH | Quote | Chart | News | PowerRating)  and (NICH | Quote | Chart | News | PowerRating). Study their charts to see what they did and to formulate your own plan of attack.

Ashton Dorkins
If you have any questions please contact me: ashtond@tradingmarkets.com

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