Tuesday, January 27, 2004
Simple Trend Trading: Fibonacci, MACD, STO, RSI
There's quite a bit on this chart, some for targeting, some for learning.
(A) In addition to yesterday's lesson on the Regression Channel to gauge pullbacks, Fibonacci retracements are also helpful. While NOT A RULE, a move off the 38.2 is strong, a move off 50 at times results in sluggish/congestion, and a move below 62 is often weak.
(B) I've arranged the indicators in an order of priority:
(1) Chose a sufficiently long MA (34ema) for direction and a shorter MA (13ema here) for early indication of either trend change or pullback entry opportunity. Other popular combos are 5/25, 9/18, 9/30, 8/13, etc. Suit your style.
(2) MACD-- This is a trend indicator: strong above Zero, weak below Zero, as I've often written about. 'Divergences' on MACD can be deceptive. When the long (34) MA is UP, the lower MACD 'divergence' is often a 'wind-up', ie, a pullback.
(3) STO -- Not always my favorite as it is very misused and misinterpreted. Best to USE IT WITH THE TREND, ie, a reversal out of oversold when the long (34) MA is UP is a decent buy. One could use it reversing out of overbot in an uptrend as an exit, but you may leave $$ on the table or churn up commissions. Experiment and find your own comfort zone.
(4) RSI -- A favorite of mine, used largely for setting price targets from divergences. The channel zones indicated (45-80 and 35-60) are only rough, draw them in for each market and time.
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Labels: indicators, RSI
