My statistical-based work over the years has clearly shown that one is far better off buying weakness (pullbacks) and selling strength (rebounds and breakouts). For example, buying 10-day lows is far more profitable than buying 10-day highs. Find several of my articles here.
Larry Connors reached similar conclusions with far more data and along the way developed the 2-period relative strength as an entry and dynamic exit trigger. I have incorporated this indicator in a new strategy for trading long fundamentally sound, TSM stocks. Further, I've now analyzed all the TSM stocks forecast in 2008 (S&P down 38.5%) and 2009 (S&P up 23.5%) with 80% plus winners in both markets. One simply monitors the 2-period RSI and when it falls below 15 for two consecutive days--buys the TSM stock either at the day's close or next day's open. On the other side, one sells the stock when the RSI rises above 80. I'll be happy to send a summary report on request @ rmiller@triplescreenmethod.com.
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