Would it not fantastic to have a flag to you when we are in a major bubble or bear market? Imagine if you had a clear signal to exit from the market on 18 January 2008, before the major crash. Then the same indicator tells you to return to markets, August 18, 2009. Such an indicator would have also received you to the market during the collapse of the bubble on 27 October 2000. Well, this indicator, I will talk about is exactly that.
Below you will also find the code for this indicator. This major trend indicator was inspired by an article entitled "RSI combines with RSI" by Peter Konner and it appears in the issue of January 2011 in the technical analysis of Stocks and commodities.
How it works
We will start with a well known flag: an indicator of strength (RSI) Relative. The premise that we are looking at is how to identify the important bull market and bear market phases. In his article, Peter does this by using the RSI indicator a weekly ranking. Peter noticed that the RSI in bull markets is rarely below the value 40. In the same way during a bear market RSI Monte rarely above the value of 60. You can determine the start and end on the bear and bull markets when the RSI crosses these critical levels. For example, in the crisis financial 2008 bear the weekly RSI indicator is not held over 60 until August 2009. This marked the start of a new Bull trend. The next bear trend will be reported when the weekly RSI drops below 40. With these simple rules, you are able to determine bull and bear markets with a surprising amount of precision, giving the S & P. futures market
Modified RSI
I personally find a bit choppy RSI signal. I decided to do two changes to help smooth the raw signal of RSI. First of all, the entry in the RSI indicator I changed the course of closing the average of the high, low, and close. I can take this signal RSI and through a moving average function 3-period exponential. The results look like this:
RSI_Mod = RSI ((c_+_h_+_l) / 3, RSI_Period);Signal = Xaverage (RSI_Mod, 3);
Below this post, the flag paintbar and the strategy are available for download. They are both very simple and use the standard RSI indicator. The RSI uses a length of 16 and is applied on the weekly chart. Also, I smooth the RSI value using a moving average exponential of the last of three readings.
Entry and exit Dates
This indicator using come us up with the following points of major shooting for bull and bear markets for U.S. indexes.
The explosion of the bubble happened in 2000 and we have have taken on 27 October, indicator of 2000.The then we said to go on June 13, 2003. We have this ride until the financial crisis, obtain market January 18, 2008. Then on August 18, 2009, we will long.
How this indicator can help you?
Looking at these dates, we see that they are specific enough to capture the major Bull and bear cycles of United States indices of shares. How can it be used in your business? Well maybe you can use it as the basis for a strategy in the long term of swing. Perhaps this is an indicator to let you know when to liquidate long positions in your 401 and other retirement accounts. Or perhaps if you are a discretionary trader you can use it to focus on trades in the main direction of the market. In any event, I thought that this was a way new and interesting to look at the RSI indicator. I hope that you will find useful in your trading.
Download
The source code of this indicator is available on my website as a free download. See the link below.
To learn more, visit system trader success - a website dedicated to the automated negotiation. We have examples of code you can download, articles on the edges of the market and discuss all things in the world of automated trading.
Jeff Swanson is the founder of http://www.systemtradersuccess.com/
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