Because my books really do not provide any exact “trading systems”, I have received posts from a certain skeptics regarding whether I know how to trade or not. The bottom line is, “It does not matter whether I know how to trade, because that will not improve your account balance”! The only thing that matters is YOUR bottom Line. That said, I feel that I owe my readers and course owners something a little extra. Especially for those that have purchased all of my works. The following is an attempt to say Thank You for your loyalty and patronage. Please do not share this with others, or post it on any other board. I will eventually find out, and will probably not make any future posts of this type again if this happens. Instead, I would prefer referrals to my books, as anyone that purchases any of my books, would have access to this information.
The following is a simple Buy only system, that I call “Opportunist”. It requires the daily close of the S&P500, NYSE advancing issues & declining issues. Each day, subtract the declining issues from the advancing issues (Advance – Decline). We will call the difference Net Breadth (Advance – Decline = Net Breadth). Construct an 18-period moving average of Net Breadth. This is a simple Moving Average, which is just the past 18-days added together and divided by 18 to produce an average eighteen-day value. When Net Breadth is negative 400 or lower, a buy signal is possible if other filters are in place.
Swing Filter: The S&P500 must be down at least 14% from its last swing high in order to validate a Buy signal. As an example, let’s say the market makes an all time high at 1000. It declines 20% to 800 and our 18-day moving average of Net Breath is less than negative 400. We will Buy Long as soon as the market can post an up close, i.e. today’s close is greater than yesterday’s close. Now, lets say the market goes up 16% to 928. This becomes our new swing high. If the market falls 14% or more from 928 and the moving average of Net Breadth falls below negative 400, we will get another buy signal.
Close Filter: The market must post a positive close after a 14% or greater decline in the S&P, and the Average Net Breadth has fallen below negative 400.
The Chart on the following page illustrates the signals with Red Up Arrows for Buys. Obviously a trailing stop or exit strategy must be developed on your part. Options are another good way to trade these signals. Typically, the market will advance at least 14% as a minimum. The Buy signal after the mini crash in 1990 is one exception to the rule. It only advanced 4.5% from the signal.
“Past performance is not indicative of future results”. You should understand that there is considerable risk of loss in the Stock Markets, Futures Markets and Option markets.
Neither I, nor anyone else involved in the production of this material, will be liable for any loss, damage or liability directly or indirectly caused by the usage of this material. The data used in this material is believed to be from reliable sources but cannot be guaranteed. The technique contained this document is not to be taken as “investment advice”. Ultimately, you are responsible for all of your investment decisions. If you are unwilling to accept this responsibility, then you should not invest in the financial markets at all.
- Timing Important Stock Market Bottoms By Daniel T. Ferrera