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To: Wade who wrote (2140)	2/6/2000 1:48:00 PM
From: Wade	Read Replies (1) \| Respond to of 2272

I just got this from TC2000. This is another way to ride the super stock. I tried it on my chart and I like it very much. Hope you all like it. Tips & Hints (Friday, February 4, 2000, 6:00 P.M.) TIP: Introducing The "RS Exit Strategy" In the wake of Sir Jack's email describing his MA exit system, I feel compelled to devote more attention to exit questions in my Notes. I believe that automatic systems are useful for exits, but nebulous tools for entry. Moving averages have been used to generate buy and sell signals as long as I can remember. Several books were written on the subject. The first that I can remember was written by Curtis Dahl, a pseudonym for a Purdue professor who had won awards as, you guessed it, a rocket scientist. An old friend, the late Michael Zahorchek, also wrote a book on buy and sell signals using multiple moving averages. I have generally opted for other tools, mainly because of certain flaws inherent in the MA type strategies. They can be overcome, but you should know about them. 1. Moving Average signals don't work well except in volatile stocks. They can also cause whipsaws in a volatile stock that runs into a prolonged sidewise movement or trading range. 2. Moving Average signals always put you into a long on strength and take you out of a long on weakness. Which is to say, you have to pay up for a stock and give up some of your profit getting out. The first flaw is most damaging when you are using MAs to generate both buy and sell signals. You can get caught in a lateral motion that bounces you in and out, in and out mercilessly. However, if you use MAs only as an exit strategy, the problem is much less damaging. But it still works far better in volatile instruments. The second flaw is something you pretty much have to accept. Everything has its pros and cons. However, it was as an attempt to provide some degree of mitigation that we came up with the "Relative Strength Exit System." We have been working with 10-Day and 40-Day moving averages - not of price but of Relative Strength (related to either the DJ-30 or SP-500). This is probably the time to tell you about it. Here is the rationale. Relative Strength can begin to wane while price is still rising. Therefore, it is possible for a 10-Day MA of RS to drop through a 40-Day MA of RS while the price itself is still rising - thereby providing a Sell Signal that allows you to sell on strength. Unfortunately, this is the best of all worlds and it doesn't happen often. Nevertheless, this phenomenon can help you get out at a better price than if you were using an MA of the price alone. And yes, the RS Exit Strategy can also sometimes keep you in when an MA of the price itself can't. If a stock is being pulled down with the market, the RS may show a subtle resistance to decline. This can be reflected subtly in an MA of RS, which may keep you in a strong stock more effectively than an MA of the price itself. That's all there is to it. It's almost the same as using two MAs of price, but the underlying RS data adds a bit of quality to the results. Neither way is perfect. Neither are any of the alternatives, such as dragging loss-cut levels or, say, MACD (which can also be adapted for Exit Strategies). Trendlines can also be useful. But the RS Strategy is handier, since properly placing trendlines takes experience. How do you set the RS Strategy up? In the top window put PRICE, RELATIVE STRENGTH, 10-DAY RELATIVE STRENGTH AND 40-DAY RELATIVE STRENGTH. (You may use different MAs if you wish, of course.) Now pay attention to this. Designate in the Dialogue Box that Relative Strength should be invisible. You don't want to clutter up your chart with something you aren't going to use and don't need to see. RS is there only to serve as the basis for calculating 10-Day and 40-Day RS. (Some of our Notes today will include this setup on the attached paperclip chart.) Rules of the Strategy? If the 10-Day is above the 40-Day when you buy the stock, hold the stock until the 10-Day drops below the 40-Day. Otherwise set a loss-cut level at a set percentage below your entry price or just below the previous minor low, which ever suits you. Once the 10-Day moves above the 40- Day, hold until it falls below it. When it falls below it, sell promptly without regard to what the fundamentals may seem to be and without regard to whether the technical indicators are bullish or bearish. Whatever you use will be your system - not ours. Improvise. For example, after you set your chart up, experiment with longer time frames. On a weekly chart, your RS MAs will be 50-Day and 200-Day. You could use the same rules, but tailor YOUR system to longer-term objectives. Or you could introduce other indicators into the rules. But don't make it too complicated. And make sure you have a reason for whatever you do. One more thing. Don't make the mistake of thinking these automatic sell signals have anything to do with prediction. Strategy provides a way of money handling, a way of determining whether you can afford to take a further risk or to risk your profit under a certain set of conditions. -DW