SIGNALS

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.