I'm not really sure how RSI is calculated, but isn't it defined such that it cannot go below zero or above 100. That pretty much explains why it bounces between the two. It doesn't tell you when it will change from OB to OS though. i.e. it could stay OB for days, and you could lose enough while it's OB that you'd never make it back.
When it is above 70 it is OB, when below 30 , it is OS. I wait for a sign that it may be about to move back the other way, or many times since I am a position trader, I just add to the position. I always start small and add. Truth be known, I probably don't need anything , maybe not even a chart to trade the way I do, but I do find it easier to "see" the picture when using indicators. Yes, people can do it with price alone, but it's not as clear.
A classic example of my style of trading was the fall 04 run up of the EURO fx futures. I initially traded long, but then used the BB as an entry point for initiating a small short position. Each time this happened , I added to the position. RSI and MACD just continued on in OB territory. I knew we were in OB, and also knew that the longer it stayed there, the bigger the reversal woud be. I added whenever BB looked to be breaking away from the upper band and so my trades looked bad initially. No big deal, I had a gradually increasing short position. Then around the end of Dec, might have been NewYears Eve , we had the big RSI and MACD Histogram bearish divergences and I stepped more on the gas. The result was one of the most profitable trades I have ever made.
I think most people are just confused as to what they consdier "technical analysis." Its a pretty large grey area. This is the way I see it. I am one of the people that don't beleive in TA. But wait, what do I consider TA. To me TA is a anything else on a chart besides the prints. All the little squiggly lines and charts and graphs dont make much sense to me. At the same time I beleive in resistence and support. How can this be true without being completely hypocritical? I find resistence and support based on whos buying and whos selling. I mean in the end thats all that determines direction. Supply and demand. If I enter a position because I see a buyer supporting any random price, I dont feel like im using TA. But if I find support using lets say a moving average, then I would be using TA. But who knows, what if my buyer is a big TA hedge fund and it hapens that I am buying along with him, am I using technical analysis? Is the cup half empty or half full? So to answer the original question, I dont use TA. Im just a pure NYSE tape reader (intraday). Level one all the way baby. Quotes, prints, and size is all I need. And its not just the prints (historical price) that I use. Its KEY to see the interaction between the quotes and where its printing. How can you chart that? To me it makes a difference whether or not that huge 50k print was taken off the bid or the ask. Why does the specialist keep printing 2 cents above the bid instead of hitting the bid thats only showing 100 share? When i went market long, why did the specialist print me off the bid instead of the ask? I dont think this is stuff that you can see from charts or JUST "historical price." I will admit one thing though. Although most of my stock picks are news plays (where I can most likely find the big buyers and sellers to latch onto and not just you day trading pikers), I also use charts to pick stocks durring the slow off earnings season times. If a chart is looking like its breaking down, I think it will draw interest from sellers or shorters that use TA and ill use them as a catalyst. But keep in mind on the flip side, if a mutual fund is buying a stock because they like the fundies and I latch onto them, does that make me fundamental trader? Nah. Ahh you silly chart kids =). Cheers. *heart* dave
i have a theory that the proliferation of TA in recent years is a product of the brokers and others who profit from trading activity. what can be more simple than TA? what can be more appealing in the markets? TA is custom made for the computer age and is a perfect tool for the predatory market machinery to extract its daily dose of cash from the naive' public. surfer
Uh, yeah. Not that I disagree with much of what you say here, but how are your death channels coming along? http://www.elitetrader.com/vb/showthread.php?s=&postid=985072&highlight=death+channel#post985072 Interestingly, this above noted hyperlinked post of yours was written well after the following one: http://www.elitetrader.com/vb/showthread.php?s=&threadid=59109 I can go on (and on), but that would just be redundant.
my trading has evolved and is continuing to evolve from when i started out as a heavy TA wonk. i try to use language and metaphors that are easily understood when i attempt to present the way i make decisions. and yes, TA, is a decent way to present the past. sorry this went over your head. surfer
How do you spell D-U-P-L-I-C-I-T-Y? I must say that you are as slippery as a salamander when someone tries to pin you down. I was thinking... marketsalamander. What do you think?