Hello Paul,
I know your question is directed to Tom but I was just updating my so called overbought/oversold (O/O) Excel generated indicators dealing with this subject and thought you might find it of interest.
I find the whole O/O subject very interesting. I'm tracking a number of issues and indexes with 3 different O/O indicators based on 50 day moving averages to see if they can help me make a buck. (Yes we all know about Stoch and RSI but that's another subject.)
The first one is based on standard deviation, the second is what I call the Dorsey Indicator and the third is what I call the Birinyi Indicator. As I mentioned all are based on a 50 day moving average.
The standard deviation is the simplest and Excel does all the work.
The Dorsey Indicator is a bit more complicated. All though Tom references a bell curve and standard deviations as a way to explain the BOT, MED, and TOP on his charts, I have found through Excel experiments that I'm much closer to tracking his numbers if I use weekly high and low ranges and from that create a volatility factor and double it and then use a 10 week average.
The Birinyi Indicator is the one I find the most interesting right now. The reason is you use a 50 day moving average, and then look back one full year at the highest and lowest that a stock or index has traded, as a percentage, above or below the average. There's no guessing or estimating in this indicator. As an example, the DJIA 50DMA is at 8444. The highest the DOW has traded above its 50DMA in the past year of trading is 12.7%, and the lowest is 16.1%. As of Friday the Dow was 11.4% above its 50DMA, or 82% overbought. Its top is 9519 and the bottom is 7083. (These are daily numbers and they change with different smoothing numbers like 5 or 10 dma.)
BTW, vertical or horizontal counts have nothing to do with overbought or oversold indicators.
One can do a vertical count at any time. If a chart is bullish (on a buy signal) you go to the last (most recent) sell signal and start there. If a chart is bearish (on a sell signal) you go to the last (most recent) buy signal and start there. If you have a question about a stock -- name it. We'll put it up and do the numbers. I have found in my own trading that the first count off a major bottom or top is the most reliable. After that, it seems to depend on the trend or the minor accumulation or distribution that occurs.
Take care,
Eric |
