David at the DK report had a wonderful post on Sunday about various timing indicators and who (bloggers) uses them. Just a little note on how I use the 2 day RSI indicator and my trading style. I don't use a strict mechanical system with this indicator as it is only one part of a methodology I use to generate buy or sell signals.

Another part of my equation is the VIX/VXO. Generally when the VIX/VXO is above 110% of the 10 day SMA a buy signal is generated. Sell signals on the VIX/VXO are supposed to be at 90% of the 10 day SMA but I prefer to trail a stop or sell on a subjective price spike.

Part 3 of my equation - market internals; when they are overbought/oversold on a short term basis- (I use a short term moving average of advancing/declining issues) - the third part of my signal is generated.

I have the most confidence in a buy or sell of a major market index/future when all 3 signals are in play. It is generally hard to buy when all three hit as the markets appear to be in free fall and fear is high.

Finally, I don't buy all at once as I prefer to scale as the signals have never proven to be perfect. Check out the book above as it is a great read that "test and proves" how buying lows and selling highs is probably the best trading option.


Blogger Bill said...

I'm very inclined to agree with you on a short-term basis - buy fear and hold it 'til it stops peeing its pants; also that buying fear works great for deploying fresh capital to the markets. It's just really psychologically hard to do the first dozen or so times you try it.

I think over longer time horizons (months and years of holding) that trend-following works better, but I don't think those are the time horizons of someone calling himself "DayShark" - LOL.

Love the blog, gotta check in every day!

3:43 PM  
Blogger dk said...

Thanks for the elaboration on your triple-play trading method, and for mentioning the timer post.

This blog is where I first learned about % above/below VIX 10-day some time ago, and I've followed it ever since. Interestingly, you quoted Connors way back then in that original post.

Nice idea about using a MA on the A/D....best dk

11:19 PM  

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