xraywiz
22 posts
msg #32792
- Ignore xraywiz |
8/8/2004 3:02:47 PM
This is a shorting filter based on market psychology. Well, what filter isn’t? In this case, I am looking at the overall market mood, and see it as bearish. So, I look at the following trivial facts that are well known to most.
1. When a stock is ready to fall hard, it often does so with both price and volume. As the price goes down, selling increases, (“herd psychology”).
The converse is true when the stock is about to rise. Again the increased buying pressure leads to higher bullish volume.
2. After this initial surge in volume, which may not last much longer than a day or two, there is a brief “retracement..” This could mean either a change in the direction of the price, or no change at all, but it doesn’t have to be accompanied by a high volume. After this period, that market resumes in its prior direction of change, bullish or bearish.
3. Variations in the price must be long lasting enough in order for us to take advantage of. So, the stock must give some advance indication of the impending change. For example, its relative strength must drop shortly before, to suggest that the particular market is turning bearish, and vice versa. RSI must be rising in order to justify a bullish move.
I use the relative strength and change in volume to find the shorting stocks. I have found that the day following the surge day is the shorting day. But this day is always in front of us, in fact it is there right at EOD on the surge day!
Check this filter out. Back-test it to see what I mean. It is uncanny how well it works these days. Also check it to see how inverting the indicators for a bullish scenario does NOT work at this time!
I have put an offset of 2 days so you see what happened just the other day. Change it to any number and see how the market behaved in the last month. The shorting profit is usually around 1% per day, but at the potential rate of near 700% gain per year, who’d complain?
Here it goes….
show stocks where volume is more than 200% above volume 1 day ago AND price is above 5 AND close is below close 1 day ago AND volume is above 300000 AND The RSI(15) has been decreasing for the last 2 days AND offset is 2 days.
I usually would not hold a shorting stock beyond a day or two, unless I see compelling reasons to do otherwise.
MMF
Enjoy life and prosper!
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