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No. of Recommendations: 6
First, thanks for sharing your method. As an out-of-the-bubble, ex-LTBH student of TA, and having read many of the classics, Sperandeo, Weinstein, O'Neil, etc., your approach has, for me, a certain elegant simplicity and sensiblity that I had not been able to put together for myself. I think that either you must be a bolt-of-lightning genius, or you have put in a lot of hard work, thought and trial and error to get to this point.

dj, you're welcome. First let me say that in the past 2 years I have read about 35-40 books on TA strategies and investment philosophies, so I guess you could call that hard work, but in actuality, I have really enjoyed it. Also, I do have a technical background as my BS is in Physics, hence my attraction to technical analysis. My MBA is in Marketing, so I appreciate finding companies that have the ability to dominate their chosen markets. I'm not very good at picking apart financial statements, so I let others to do that (some very good ones right here on the KP board). I won't say I'm a genius, but I was in the top 3% on my GMAT test, and I am a member of MENSA. I have developed this system myself, after assimilating much from O'Neil, Weinstein, Elder, Trader Vic, Schwager's Wizards, etc., (and a lot of bright people here at TMF). It is my system, and I haven't seen anything exactly like it. But you will see a big influence from Weinstein.

I developed this system because I was upset with what happened to my portfolio since March 2000. I wanted a low risk system that would keep me in stocks as they were rising, and out (or short)when they were falling. Yes, there has been quite a bit of trial and error (mostly error) until I got it to where I'm very comfortable with it. But as I have stated in other posts, one of the keys to long term success is to continuously monitor one's strategies based on actual real life investments and to modify the system accordingly. I'm sure I'll have a few modifications in 2002. One of the things I'm struggling with now is to develop a methodology of allocating what % I want to be long in, and what % I want to be short in, at a particular given time.


1. Volume 40% over MA.
Looks like you use Yahoo mostly - do you know what period their MA is over? At stockcharts I believe it's 50 days. Say a stock has been trading well below its longer term MA for a week or two. Then it breaks the 50 DMA price by more than 3% with volume that is substantially greater than the last week or so - but maybe just up to the longer term MA, would you ever take that as valid signal? Or would you insist on volume over the longer term average?


I'm afraid we have a signal crossed here somewhere. Yes I do use Yahoo, but the volume part of my criteria is 40% above the Average Daily Volume (not 40% above the MA). For example, if a stock normally trades 300,000 shares I want it to trade at 420,000 shares before I buy it. This volume is a separate criteria from the MA. I want a stock to be 3% over the 50 day EMA (another of my four criteria). When you go to charts on Yahoo, above the chart is a "Technical Analysis" link. When you click on Technical Analysis you will be given a plethora of options. I immediately click on the "50" under EMA (Exponential Moving Average), then I click on MACD, then RSI, then Volume, and I have my chart. For example:

http://finance.yahoo.com/q?s=RMBS&d=c&k=c3&a=m26-12-9,r14,v&p=e50&t=1y&l=on&z=m&q=l

When I want to see more detail, I click on the 3 Month chart at the top left (everything else remains the same).

You can look at a variety of MA's and EMA's that are standard on the Yahoo Technical Analysis chart feature, but I prefer the 50 day EMA. Sometimes I also click on the 200 EMA as well. Sometimes I look at the stochastics, sometimes I overlay Bollinger bands, etc. Everything I want to look at is on Yahoo.

I want my first criteria to be the stock price is 3% above the 50 day EMA. Then I look at MACD (is it positive?). Then I look at RSI (has it risen in the past month). Then I look at volume as compared to the ADV (must be 40% above the ADV). If all these conditions are met on the same day, then I will buy. I'm not sure this answered the second part of your question, but I hope it did.

2. RSI / MACD trend
My question about this is, do you want to see a well established trend, something that has been generally trending up for a week or two at least? Or, if everything else looks good, but say the MACD has been more or less flat, but as the price crosses the 50 DMA, the last couple of days of MACD ar exhibiting an upward turn, would you sometimes consider that sufficient?


I just want the MACD to be in positive territory for a buy signal. I want the RSI to be above where it was a month ago. If it meets all four criteria, it's a buy. No gray areas here (no borderline circumstances, must meet all four criteria). I don't use the general market trend or the sector strength as part of my criteria (although I agree that these are very important in most systems). Where the general market trend comes in, and one thing I'm still evaluating, are methods to determine my relative short and long positions. However, I will state that by looking at sectors, and looking at which sectors are breaking above the 50 day EMA, and looking at the particular stocks in those sectors, then you have a way to screen for potential stocks that meet my criteria.

NukeJohn


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