Gottfried,
I don't know what your specific goals are but, since you are using a monthly chart, I am assuming your emphasis will be on the more recent months.
If you're looking at buying strength, and looking for the market to confirm such conditions, then I would deem relative strength as one of the more important indicators. I would use the MACD histogram to confirm the trend.
The RSI I have set at 12 months. The MACD histogram is set at standard but does seem to confirm the trend as accurately as a monthly chart is able to do.
I would use a 3 and 12 month ema on the moving averages. Most buy and sell systems that use a moving average crossovers to signal buys and sells are unreliable for consistent profits. I use the moving averages to gauge strength. If the price is above them, the market is strong. If the prices are below them, the market is weak. I don't wait for the crossovers. When the indicators turn, you can see where they are headed. I move on that signal. With a 4 to 1 ratio on the moving averages, you should be able to see a change in the condition of the market without the moving average crossing over.
I read the other day that ma's are more effective as signals when using an 8 to 1 ratio. That would mean a 24 month vs a 3 month moving average. The chart has a totally different outlook with this setup. You can clearly see that when the 3 month ma turns over, it's time to move.
stockcharts.com[h,a]maclyiay[pc3!c24!f][vc60][iut!Ub12!Lah12,26,9]&pref=G
(An interesting crossover on the moving average, eh?)
In any event, I would use time frames that have some separation so as to not provide too many false signals.
Gottfried, I've had a great month buying strength as opposed to reversals. In 3 days this past week, I made 27% in OPTV. In 2 days 17% with DCEL. Over 20% on DBLE in an overnight trade. MTRX had a similar result two weeks ago. I've had a few trades go against me too but, I haven't taken a loss in excess of 6%. I had a terrific month!
When buying strength, one has to keep in mind that those stocks will pull back smartly in negative market conditions. So, it's important to gauge the market and respond properly. When the market is rising, strength provides the type of returns mentioned above, in a very short period of time.
dabum |
