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| davesaint86 725 posts msg #56943 - Ignore davesaint86 |
11/22/2007 12:27:22 PM Just wondering does anyone out there use market timing signals to go long or short. Do you use filters (crossovers maybe Slow Stoch or MACD crossovers, Williams R) on the Indices? I would like those of use to post filters or the charts you use if you don't mine. I mainly use a combination of the Slow Stoch, Stoch RSI, and MACD for confirmation. Daveaint |
| davesaint86 725 posts msg #56945 - Ignore davesaint86 |
11/22/2007 2:16:21 PM I haven't tried this strategey yet but here it is. By John A. Sarkett, Developer, Option Wizard The Force Index focuses on three key pieces of market information -- price change, extent of price change and trading volume. The force of every move is defined by its direction, distance, and volume. If prices close higher, the force is positive, if lower, then negative. The greater the change in prices, the greater the force. The greater the volume, the greater the force. That is the simple but powerful concept behind Force Index. Like other oscillators, Force Index works best if it is smoothed with a moving average (MA). Force Index smoothed with a short MA , e.g. two days, helps pinpoint entry and exit points. Force Index smoothed with a longer MA, e.g. 13 days, shows major change in the force of bulls and bears. Building the Force Index You can build your own Force Index database for any security or index in a spreadsheet. Here is the formula: Force Index = Volume Today * (Close Today - Close Yesterday) Let’s look at a spreadsheet to get the ‘feel’ for the numbers; here are the numbers for the Nikkei Dow: Nikkei Dow Date Close Volume Force Index FI: 2-ema FI: 13-ema 10/29 25329 3834 10/30 25242 4495 -391065 10/31 25194 1372 -65856 -130807 11/01 24295 2547 -2289753 -1570105 110/2 24195 2891 -289100 -7161902 11/05 24385 1448 275120 -55287 11/06 23966 2796 -1171524 -799445 11/07 23500 3675 -1712550 -1408182 11/08 22970 3167 -1678510 -1588400 11/09 22932 2880 -109440 -602426 11/13 23974 2484 2588328 1524743 11/14 23937 1827 -67599 463181 11/15 23487 2212 -995400 -509206 11/16 23172 2741 -863415 -745345 -338231 11/19 23519 1931 670057 198256 -261590 11/20 23205 1405 -441170 -228027 -256796 11/21 22816 2259 -878751 -661843 -314660 11/22 23400 2163 1263192 621514 -180921 (If you like to plot the numbers yourself, or import them from a technical analysis program for your own analysis, here’s a programmer’s trick to make the Force Index exponential moving average (EMA) numbers smaller and more chartable: divide Force Index by the price of the underlying security.) If you plot Force Index as a histogram, you will see it is quite jagged, so Dr. Elder recommends smoothing it with a 2-day-average and a 13-day-average. Short term traders can buy when the 2-day exponential moving average (ema) is negative and sell when it is positive, as long as you trade with the 13-day ema of prices, that is to say, trade with the trend, buying uptrends and selling downtrends. The 13-day EMA of Force Index tracks longer-term change in the force of bulls and bears. When it crosses above its centerline, it shows that the bulls have the upper hand. Conversely, when it turns negative and heads down through the centerline, it shows that the bears are in control. Divergences between a 13-day EMA of Force Index and prices point to important turning points. It shows that bulls or bears are losing their firing power (volume) and that a counterattack may soon follow. Seven Trading Rules A 2-day EMA of Force Index is a highly sensitive indicator of the short-term force of bulls and bears. It is so sensitive that it is best used to fine-tune signals of other indicators. When a trend-following indicator identifies an uptrend, the declines of the 2-day EMA of Force Index spot the best buying points. When a trend-following tool identifies a downtrend, a 2-day EMA of Force Index pinpoints the best shorting areas. Rule NO. 1. Buy when a 2-day EMA of Force Index turns negative during uptrends. No matter how fast and furious an uptrend, there are always pullbacks. If you delay buying until the 2-day EMA of Force Index turns negative, you will buy closer to a short-term bottom. Buy-Stop, Sell-Stop Trading Tactic. When a 2-day EMA of Force Index turns negative during an uptrend, place a buy order above the high price of that day. If the uptrend resumes and prices rally, you will be stopped in on the long side. If prices continue to decline, your order will not be executed. Then lower your buy order to within one tick of the high of the latest bar. Once your buy stop is triggered, placed a protective stop below the low of the trade day or the previous day, whichever is lower. This tight stop is seldom touched in a strong uptrend, but gets you out early if the trend is weak. Now for our second rule . . . Rule NO. 2 Sell short when a 2-day EMA of Force Index turns positive in downtrends. Your trend-following indicators identify a downtrend, but rather than short the lows, wait until your 2-day EMA of Force Index turns positive. It indicates a quick splash of bullishness -- a shorting opportunity. Place your order to sell short below the low of the latest price bar. Let’s say, however, the 2-day EMA of Force Index continues to rally after you place your sell order, raise it daily to within a tick of the latest bar’s low. Once price slide and you go short, place a protective stop above the high of the latest price bar or the previous bar, whichever is higher. Move your stop down to a break-even level as early as possible, (remembering of course, that while various trading systems can be successful at various times, money management is the one system we all must have all the time to be successful.) The 2-day EMA of Force Index helps you determine when to pyramid your positions. You can add to longs in uptrends each time Force Index turns negative and add to shorts in downtrends whenever Force Index turns positive. Force Index even provides a glimpse into the future. When a 2-day EMA of Force Index falls to its lowest low in a month, it shows that bears are strong and prices are likely to fall even lower. When a 2-day EMA of Force Index rallies to its highest level in a month, it shows that bulls are strong and prices are likely to rise even higher. Perhaps most helpfully for some, a 2-day EMA of Force Index helps you decide when to close a position. A short term trader who goes short when this indicator is positive should cover when it turns negative. A longer-term trader should exit only if a trend changes (as demonstrated by a change in the slope of a 13-day EMA of price), or if there is a divergence between 2-day EMA of Force Index and the trend. Rule NO. 3 Buy when prices fall to a new low while Force Index makes a more shallow bottom. Bullish divergences between 2-day EMA of Force Index and price give strong buy signals. A bullish divergence occurs when prices fall to a new low while Force Index makes a more shallow bottom. Rule NO. 4 Sell when prices rally to a new high while Force Index traces a lower second top. Bearish divergences between 2-day EMA of Force Index and price give strong sell signals. A bearish divergence occurs when prices rally to anew high while Force Index makes a lower second top. Looking at the intermediate term A 13-day EMA of Force Index identifies longer-term changes in the strength of bulls and bears. Its position relative to its centerline show which group is in control. When it diverts from price movement, major turning points are identified. Rule NO. 5 When a 13-day EMA of Force Index is above the centerline, bulls control the market, and when it is below the centerline, bears control it. When this indicator flutters near its centerline, it identifies a trendless market -- a warning not to use trend-following trading methods. When a rally commences, prices often leap up on heavy volume. When a 13-day EMA of Force Index reaches a new high, it confirms the uptrend. When the uptrend ages, prices rise more slowly or volume becomes thinner. Then a 13-day EMA of Force Index starts tracing lower tops and eventually drops below its centerline. It signals that the bull move is over. Rule NO. 6 A new peak in the 13-day EMA of Force Index shows that a rally is likely to continue. A bearish divergence between a 13-day EMA of Force Index and prices give gives a strong signal to sell short. If prices reach a new high but this indicator traces a lower peak, it warns that bulls are losing power and bears are ready to take control. Rule NO. 7 A new low in the 13-day EMA of Force Index shows that a downtrend is likely to continue. If prices fall to a new low but this indicator traces a more shallow low, it warns that bears are losing power. This bullish divergence gives a strong buy signal. When a downtrend begins, prices usually drop on heavy volume. When a 13-day EMA of Force Index falls to new lows, it confirms the decline. As the downtrend grows old, prices fall more slowly or volume dries up. Then the 13-day EMA of Force Index starts making more shallow bottoms and finally rallies above its centerline. It shows that the back of the bear has been broken. One final caveat: the Force Index is not perfect, nor is any other indicator. It is best used to confirm other indicators, and when it is wrong, or when it is misinterpreted, your money management skills should preserve your capital for future opportunities. |
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