I can tell you from personal experience that the RSI indicator works better for long term overbought and oversold price levels; it tends to be less prone to false signals and works great for divergence analysis. You can either do a quick visual analysis or use one of several indicators I previously demonstrated to find a stock that’s trending strongly either up or down. You can see from the example above, the Stochastic Oscillator, provides a great measurement for pullbacks in a trending market. During the next few weeks I will go over some additional techniques that you can use to make a complete strategy using the modified stochastic indicator. GOVERNMENT REQUIRED RISK DISCLAIMER: FUTURES & FOREX TRADING HAS LARGE POTENTIAL REWARDS, BUT ALSO LARGE POTENTIAL RISK. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING.ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY.
Interesting to note here: in mid-August, when key stock indices were witnessing wild swings, the fear index jumped to the highest level since 2009! The Stochastic Indicator on the other hand is a measurement of the placement of a current price within a recent trading range. When you are trading short term stock trading strategies that require analysis of market tops and bottoms, I highly suggest using the RSI. Here is a good example of the type of trend you should look for when looking for trading opportunities. When the indicator lines cross above the 80 level, it signals that the stock is temporarily overbought. You can create some great short term stock trading strategies with these methods or use it as a confirmation indicator when using basic visual analysis for pullback or retracement entry signals. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. And three stock market indicators I follow are warning of an even a bigger market sell-off ahead. When investors are fearful, as the VIX now shows, they tend to sell on market weakness, pushing stock prices down further. What is also interesting to note here is that their portfolio consisted of almost 100% stock in February of this year.
No part of this document may be used or reproduced in any manner or means, including print, electronic, mechanical, or by any information storage and retrieval system whatsoever, without written permission from the copyright holder. The Stochastic on the other hand tends to work better with short term market swings that are not meant to signal market tops or bottoms but only a slight change or a correction in the trend.
When the Stochastic moves below the 20 level, it signals that the stock is temporarily oversold. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
In a matter of six months—February to August—their stock holdings have plummeted roughly 70%! These are standard settings on the Stochastic and I find them to work perfectly with this pullback method.
When big investors are selling stock, their actions can impact the market if there are not enough buyers on the other side of the market. I find that most short term stock trading strategies tend to respond better for short term pullbacks or price retracements.
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