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Determining the trend in the presence of noise.
If you look at this problem from an information theory standpoint, a
EMA(20) will extract maybe 85% of the theoretical maximum available
information in the OHLC data. More exotic indicators may increase
that somewhat. Using this on a random group of stocks will get you
modest returns AT BEST.
So what is needed is more information.
I have found that information in 2 places so far:
1. Use a universe of stocks that have strong fundamentals - there are
many sources:
StockScouter free
Valueline 100 $$$$
IBD 100 $$$$
StockCharts.com 100 free
etc
Then apply your favorite trending indicator to these stocks that
already have built in an upward bias due to fundamentals.
2. Invest in Sector ETF's - here the value is not as obvious, but
large players will start buying a sector and it takes them several
weeks to a few months to build a position, so the trends in these
groups of stocks will continue for long enough for a small investor to
make a profit.
Again, apply your favorite trender to those funds in an uptrend.
These players will 'pile on' for some time, generally several months
then will do a 'sector rotation' sell what they currently own, and
buy a sector that has been beaten down and ride that one up. It is a
real herd mentality, but for small players, we can ride along and make
a decent return.
Uptrends are preferred because most large money players are long only
- pension funds, mutual funds, index funds.
Reef-Break
--- In equismetastock@xxxxxxxxxxxxxxx, "vlad" <entinv@xxxx> wrote:
>
> Try combination of DMI+ DMI- and ADX.
>
> Regards,
> Vladimir
> -----Original Message-----
> From: equismetastock@xxxxxxxxxxxxxxx
> [mailto:equismetastock@xxxxxxxxxxxxxxx]On Behalf Of chorlton_c_hardy
> Sent: Wednesday, December 21, 2005 4:55 PM
> To: equismetastock@xxxxxxxxxxxxxxx
> Subject: [EquisMetaStock Group] Help needed with indicator selection
>
>
> Hi All,
>
> I trade UK stocks and currently I am quite successful in choosing
> those stocks which continue to make short-term gains in an Uptrend
> using certain combinations of MA's to first identify these stocks.
>
> However, the one area where I am having MAJOR problems with is
> predicting when the current uptrend rise will collapse.
>
> So far, I have held on to certain stocks only for them to suddenly
> drop in SP which results in my stop loss being hit , or worse still
> closing trades only to watch them suddenly shoot for the stars a few
> days later !!!!!!!!
>
> There may be some scope to modify my stop loss (ie. lower it) to
> eliminate it being activated but this obviously will have a knock on
> effect to my risk:reward ratio.
>
> My goal is to identify those stocks beginning a new uptrend and to
> ride the tend as much as I can before it falls against my position.
> In the instances where the SP then levels off and stays within a
> short trading range, I am happy to wait 3-5 days to see if the
> uptrend continues and if not, to close my position.
>
> Consequently, can anyone recommend any good indicators to give some
> indication as to when a rise may run out of steam or when it is good
> to keep a certain trade open??
>
> Any help much appreciated as I've run out of ideas and don't know
> what to try.....
>
> Many Thanks in advance,
>
> Chorlton
>
>
>
>
>
>
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