Hi Chris
I went to your homepages to try to get an idea of how you're using StochRSI 8,5 crossing over StochRSI 14. You are using it as a buy indicator while I have been using it solely as a sell (short) indicator since January, but the methodology is simply the mirror-image. What you would use as a buy signal, I use as a signal to close out a short position. One of the charts we have in common (although from different sides) is ENCD. I shorted it on 3/7 and covered on 4/1. It is currently close to the top of my short candidate list with an StochRSI 8,5 of 94 (rising) and StochRSI 14 of 78 (rising). Price is off at this time, so may be turning down today without the expected last day runup. My short entry point is when 8,5 peaks above 80 AND TURNS DOWN along with 14 peaked also TURNING DOWN.
DO NOT ANTICIPATE the turning point. A second, critical parameter for shorting is to select stocks ONLY in a downtrend or ranging---no uptrending stocks!! You could do this by a negative Dahl, but this is too long an indicator and one glance at the chart tells what trend it's in. IMO, ENCD was in an uptrend till October, and is now heading down the other side of the mountain. This is the type I like to short as it oscillates between overbought and oversold. In otherwords, play it from the short-side not the long-side. Cant stress this point enough GO LONG ONLY THOSE STOCKS IN AN UPTREND; SHORT THOSE STOCKS ONLY IN A DOWN TREND, PLAY RANGING STOCKS AS YOUR PROFICIENCY ALLOWS
Another cardinal criteria in my use of StochRSI (8,5) & (14) is on ALL candidates look at weekly chart also. If 8,5 and 14 are both above 80 on the daily, but they are below 20 on the weekly, I probably wont short at this point. I want to see the weekly 8,5 at least 60 and rising. The best shorting opportunities occur when BOTH daily and weekly 8,5 and 14 are above 80 and are turning. Look at a lot of charts around Feb 18th or so and you will see what I mean. As the market gets oversold, it gets harder and harder to find stocks wherein the weekly 8,5 and 14 are overbought, conversely, it gets easier and easier to find long candidates that are oversold (8,5 and 14 Below 20)
So, for your long purposes, find stocks where the Daily 8,5 and 14 are below 20 and are showing signs of turning up. ALL stocks (except parabolically rising ones) are cyclical in nature, hence the oscillators work. On your long candidates, scroll backward through the chart and see how the 8,4 and 14 have done previously. Did their peaks and valleys coincide with the stock price's peaks and valleys, and more importantly, did they start turning before, at or after the price peak or valley. Sounds simplistic, but it is slightly different for every stock, and this is one of the nuances you will learn as you look at thousands of charts<g>. Conversely, if there are too many instances where the stock changes direction when the 8,5 is in mid-range, then I dont consider the stock--StochRSI doesnt work perfectly on every stock, so I dont waste time on those that it hasn't historically worked on. Back to cycles, roughly every 3rd or 4th time the daily peaks, the weekly does also. Again, look at many charts and see how this works out.
This crossing indicator, and its use on charts, cant be used solely mechanically with predictable success. It requires interpretation and study of its application, but I have not found a better oscillator. Dave would probably take issue with this, as he seems to want a purely or idealy mechanically derived system. The risk with purely mechanical systems is misapplication of an indicator, then blaming the indicator when it fails, rather than the faulty application.
Hopes this helps,
Gary |
