Archive for the ‘Advanced’ Category
Do you Know a Sure Thing When You See One?
This advanced lesson will teach you the Know Sure Thing. This happens to be an indicator that is a complex, smoothed price velocity momentum indicator. This is a price velocity indicator that shows the rate of change in the prices over a moving average and weighted to give more recent data precedence. If it is used wisely, makes investing choices easier for even the most experienced. It was developed by Martin J. Pring and described in his book Martin Pring on Market Momentum, McGraw Hill 1993. Before you go jumping to conclusions, there IS no sure thing, as Pring points out, “it’s also important to know that this approach is not a sure thing.” But since there are better indicators available to us, we continue to search for the best method.
The KST can be used as a buy signal when the oscillating lines shown below cross each other going upwards. The sell signal is indicated when the lines seem to peak and come into a horizontal position, more or less. This is my approach, it is rather simple but it can give you more than 65% chance of having a profitable investment, more so when used for long term investment.
The KST seems to work, on the Charts I’ve tried it on, and may be useful to those who can get the formula and build the indicator in MetaStock version 11.0.
If you’re interested, this is MetaStock’s code for the KST indicator:
Periods:= Input(“Enter the number of periods”, 1,9999,1);
((1*Mov(((C/Ref(C,-(9*periods)))*100),(6*periods),E)
+2*(Mov(((C/Ref(C,-(12*periods)))*100),(12*periods),E))
+3*(Mov(((C/Ref(C,-(18*periods)))*100),(6*periods),E))
+4*(Mov(((C/Ref(C,-(24*periods)))*100),(6*periods),E)))
/10)-100;Mov(
((1**(Mov(((C/Ref(C,-(9*periods)))*100),(6*periods),E)
+2*(Mov(((C/RefC,-(12*+periods)))*100),(6*periods),E))
+3*(Mov(((C/RefC,-(18*periods)))*100),(6*periods),E))
+4*(Mov(((C/RefC,-(24*periods)))*100),(9*periods),E))
)/10-100,(9*periods),E);Input(“Plot a horizontal line at “,-100,100,0);
To get this indicator working, you must type the above code in the Equis Metastock 11.0 Charting Software at the Indicator Builder Option. Below is an example of It being used on Fannie Mae. Note that both red lines below the Chart have bowed into a horizontal position. This seems a time to sell, but never short-sell on this indicator, as that is not one of its defined uses.
produced by MetaStock (www.equis.com)
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Understanding the RMO Oscillator
The Rahul Mohindar Oscillator can be used across any time frame and for any financial instrument. It is designed to work with both Bar Charts and Japanese Candlestick Charts. This indicator is a gauge as to market direction and can be a primary trend indicator in many trading systems.
The RMO is displayed as a histogram. As a bullish “buy” sign, we will look for the point at which the histogram shows movement crossing the oscillator’s zero line going upwards. If it should go down and cross the line going down, that would be our “sell” sign, or a “short-sell” sign.
The complete trading system is available through the Equis International MetaStock Charting Software. An example of the complete, 5 step method is shown in the Chart below.
This is the way the Charted RMO Trading Model looks using Apple Computers(AAPL):
published by MetaStock(www.equis.com)
The RMO Oscillator, explained above, is the green graph shown at the top window of the Chart. This indicator is the first gauge as to the market direction. Once the primary trend is determined, the second window should be observed.
The second window of the Chart contains Swing Trade 2 in pink, and Swing Trade 3, which is purple. These two indicators are designed to help us see the medium term and the long term trends. The pink histogram (Swing Trade 2) represents the medium term trend and the purple histogram (Swing Trade 3) represents the long term trend. When the histograms cross each other, it represents a change in the strength of the trend.
Moving forward past the third window for the while, we see the blue and red Bar Chart below it. The red and blue alert arrows and the color of the bars on the Bar Chart represent the crossing points of the Swing Trade 2 and Swing Trade 3 histograms. These signify a change in the strength of the trend. Blue bars are taken as bullish signals, while Red bars are bearish.
To enter a long buy or exit a short sell position, three conditions must be met:
1. The RMO is currently above zero.
2. The most recent alert arrow must be blue.
3. The price bars on the Bar Chart must have become blue at or before the examined time frame.
To enter a short-sell or exit a position, the reverse must be true on all three conditions.
Now to the third window that we skipped before. This is the exit swing indicator and gives added protection when applying stops by having us put in a trailing stop at certain situations. The rules for applying this is that first you must be invested and in a profitable position. If you are in a long position, for example, and this indicator falls below the red horizontal line demarcating the chart, consider putting a trailing stop below the trade. And if this indicator, called the exit swing indicator crosses above the blue line demarcating the chart, consider putting a trailing stop above your short sell position.
This is just one example of the many different and complex trading methods in the Science of Technical Analysis. It has a whole realm on to itself that can never be beat by any other method of Market Analysis for success rate, popularity and enthusiasm which investors using it see. This world must be examined by all who wish to invest and those who put it off or blame it for certain disasters speak from a stance of utter ignorance of the Science, for if they examined even the simplest line studies, they would know the truth.
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OBV and a trading strategy
OBV seems to be one of the better volume-based indicators,it is used to show how volumes behave in relation to price changes.. When tested against the classic “buy and hold” strategy, it left it behind in the dust. Testing over a 72 year period on the Dow Jones Industrial Average showed that the specific strategy I will explain, assuming a long long long-term commitment, will derive over 1 million percent better results than “buy and hold”. This may not be as profitable in stretches of a year or less, but I do see that there is a place for it in shorter time-frames of, lets say, a few months or so (weekly and daily charts).
Simply overlay the OBV (available on most system) on the 3-day EMA of the next day’s closing. When the OBV crosses this EMA line from below to above it, buy or cover short. If the OBV crosses the next day’s closing 3-day EMA going down to below it, then sell or sell short(enter). Below is an example of the method working in a relatively short-term period.
This is the way the Chart looks:
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Outside Key Reversal: OKR, for Candlestick afficionados
The second to last red Japanese Candlestick you see below, a red candle that with its length from top to bottom and from high to low (daily) that seems to swallow up the previous green candle wholly is called an OKR, or outside key reversal. It is, as the name implies, a revesal point for a trend, some times minor, some times major. in the example I chose below, for Juniper Networks it may signal the start of a painful downtrend, if not only for the severly morbid looks of the OKR and its’ classical pattern. That is what an OKR usually does usually, it signals a pattern change, or trend shift. Whether it is to the detriment of the equity, as seen here, or if a green candlestick swallows a small red one, to its’ assistance. See my example for Juniper.
This is the way the Chart looks:
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Swing it with POWER!
The powerswings indicator, as shown below by the zig-zagging alternating red and green lines, was developed by http://www.powerswings.com and is the variant of the known ZIG-ZAG indicator. Though the Zig Zag can theoretically be suited to any size of swing you wish to generate, I find the POWERSWINGS indicator as implemented be eSigmal (http://www.esignal.com ) set up excellently for my uses both as an investor and for analysis on this site.
This indicator shows clearly, in red (down) and blue (up) the down and up cycles inside a trend or pattern. It can make sense of the somewhat mayhem that floods the eye at first glance on a Chart. In eSignal, some paramatrics can be changed, including the color of the lines ( notice I made my upcycle green) and their thickness. Check out the sample Graph and see!
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This is the way the Chart looks:
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Picking up “STIX”
A market breadth-momentum oascillator not well known, though sometimes very useful in determening an entry or exit point in the course of the market when dealing with indices or index-based equities. STIX goes basically like this: pick a point in the past (at least 21 days ago) that there was more or less a balanced situation i.e. sideways pattern and the like and set it at 50. In the next day’s value take advancing issues (in NYSE the symbol is $ADV and is an indexed value) and divide by (advancing + declining) issues ($DECL) together, give it a 9% weight (multiply by 0.09). Take the result and add to it 91% of the previous value; i.e. RESULT multiplied by 0.91. That is STIX. The reason for the 9% and 91% weight given is to give the oscillator a 21 day exponential smooting as is seen in many indicators.
This indicator is not so hard to implement. The author does not have the software that provides this, but you can find it in http://www.equis.com and by surfing the net for companies that can give you more than the avarage 15-20 indicators at a decent price, and those are not lacking. I myself got stuck with a contract (7 months to go) and am doing the best with what I have.
The idea here is to wait until the oscillator balances out (if you didn’t start it out at a balanced time–sideways,triangle and the like), which can take a few weeks, and then, as studies have shown, you should be able to turn a profit if you follow these simple rules:
1. Enter (Buy)———–when the STIX crosses the 49 level on its’ way up.
2. Close (Sell)———–when the STIX crosses the 49 level on its’ way down.
3. Enter (Sell Short)—–when the STIX crosses the 49 level on its’ way down.
4. Close (Cover Short)–when the STIX crosses the 49 level on its’ way up.
Such a method was proven to be very profitable in trading specifically with market indices like the NYSE, DJIA, or NASDAQ, but you may use it on most of the major market indices where the advancing and declining issues variables are available. It is not wize to play around with it on equities and substituting other paramaters to its’ formula that MAY fit the bill. If you pick an equity, or ETF that tracks the index, and go by index values, make sure the ETF really tracks the index well and do your homework there, for that is critical in this situation.
In addition, a positive divergence (where STIX goes up while the daily low prices fall), may indicate a bullish spirit is in the offing. On the other hand, if there is a negative divergence (where STIX goes down while the daily high prices rise), this may be the time to opt out or sell short.