say you have a 5 day simple moving average, but you want to find prices that are extremely away from the average. i know you could say something like: current price is greater than 5% away from it's 5 day average the problem with this is that a 5% move is only a big move depending on the stock (price, volatility, etc.). so how can you find extremes that are relative to each stock? thanks
You can weight moves by price/volatility (e.g. how many standard deviations it is from the MA after a move - that will account for the peculiarities of the issue). Sorry for the brief answer, I have to run now, but will probably get back to it later if it's not answered by then.
Price can't really get to far away from the 5ma can it? If your looking for potential reversals most technicians use an ADX (ave. directional movement) scan. Adx indicates the strength of a trend. Rule of thumb is an adx over 40 should be watched for reversal meaning the existing trend has been in place for a while and is due to reverse. In a long trend like we've had they can get quite high. Adx is a result of +DMI( plus directional movement) and -DMI ( minus directional movement). Both dmi indicators are usually included in the same pane with adx. A bottom fishing scan would look for adx above40, -dmi today below -dmi yest. ( the minus directional move is diminishing) and +dmi today above + dmi yest. ( the + plus directional move is increasing) and -dmi today is above + dmi today. The -dmi is above and getting weak as the +dmi is bleow, getting stronger and rising till they cross. This is generally coupled with RSI. The dmi's cross and the RSI rising is a buy signal. Put this together with Bollinger Bands . If they are expanding and price is close to or riding the upper band I'd be watching closely. Hope this wasn't more than you wanted to know.
Cool Gordie, and I follow this thread from the other one you started. Now I understand even more what you are thinking. Oliver Velez of Pristine.com and author of Tools and Tactics for the Master Daytrader... described the same scenario and as I recall, left it up to a "when it seems to be extended" call. Sheesh! I recognize the benefit of quantifying your observation, although relative to each stock, using a % rule would be accurate. But I know what you want. Too bad you can't say, "when the price of the stock is 1 inch from its 5 sma. I'm thinking....no that's not wood burning... For now, all I can say is...
i bought that book a while ago and it hasn't made me 5 cents. i wonder if he's even made 5 cents with the information in his book.
Poorly wriitten, actually poorly edited - I think the basic Pristine setup and the late day 5 minute breakout are valid, especially the late day one. I don't use either of them on their own, but the late day occurs a lot, and in my own trading it is something I look for if I've been holding a position all day. It sounds like you want to scan for the condition that you are describing which would be sweet. Empirically, the two results from this setup are a snap back to the average, like a "V" recovery, or an inverted "V"...or it consolidates, ie., moves sideways to the moving average. Again, empirically, the longer the time frame, the more likely there is to be a consolidation versus a snap back. Not empirically, and a matter of fact.....
Thx Publias, I am not as well versed as you to have so many new ones that evoke real thinking, so I have to stick with a simple one to go with my simple brain. Having read thru much of your journal, I, too, along with the others am glad you are posting.
ooh Banjo! If I ever get my hands on you! I'm gonna....What's the idea of giving away my trade secrets? I had to read several books and visit many websites to come up with my proprietary no one can use them but me system. Yep Gordan, want to express it? Just look at BB. That's exactly what it does. An ma running down the middle with the two extremes on either side. I run the chart with the bands, below it the adx, and below that the rsi. banjo, you forgot the REAL secret to my system. You must first completely eliminate the word ALWAYS from your life. Every tag and every crossover is as new and exciting as the next coin flip. If I ever start making money with this system I'll shut up, cause I don't like to brag.
They crack me up First few times I kept thinking what happened he forgot to finish! And thank you for the kind words... PEACE, health, and good trading, Publias