Two Indicators to Enhance Your Edge

There aren’t any magic bullets, however we are able to enhance our buying and selling edge by beginning our choice course of with two confirmed ideas: pattern and momentum. These are maybe the 2 strongest forces available in the market. The thought is comparatively easy: keep on the proper aspect of the pattern and deal with the leaders. That is principally dual-momentum. Beginning our course of with these two steps will enhance the percentages of success. We’ll first select the timeframe after which choose two indicators.

Relating to trend-momentum methods, my analysis means that longer timeframes work higher than shorter timeframes. This implies 200 days works higher than 50 days. Brief timeframes, akin to 20 and 50 days, are higher suited to mean-reversion methods, which commerce pullbacks inside uptrends. 200 days covers round 9 months. That is lengthy sufficient to soak up a 2-3 month correction and brief sufficient to permit for prolonged tendencies.

Subsequent, we want a trend-following indicator. Whereas there are dozens of choices on the market, a easy 200-day SMA works fairly properly for long-term pattern identification. The thought is to filter out shares which are in downtrends and solely deal with shares in uptrends (above their 200-day SMAs). Destructive outcomes are extra seemingly when under the 200-day SMA and optimistic outcomes are extra seemingly when above. It’s as easy, and efficient, as that. 

The chart above exhibits META with the 50 and 200 day SMAs. Within the indicator home windows, we are able to see the % above MA indicators, which present the space between the shut and the shifting common. META broke the 50-day SMA a number of instances, however none of those breaks resulted in a pattern reversal. These breaks merely marked tradable pullbacks inside the greater uptrend. It will have been extra worthwhile to build up on breaks of the 50-day because the inventory held the 200-day and prolonged larger.  

After filtering for shares in uptrends, we then want a momentum indicator to quantify efficiency. Right here once more now we have dozens of decisions. Charge-of-Change is the purest momentum measure and likewise works fairly properly. As with the SMA, I’ll use the 200-day Charge-of-Change to seize long-term efficiency. We will then rank shares and deal with these with the strongest momentum.

The CandleGlance charts above present the highest performing S&P 500 shares. I created a ChartList with S&P 500 shares, seen the listing as CandleGlance and sorted by the ROC(200). This places the highest performing shares on the high and I can then scroll by way of this listing to create a short-list for additional evaluation.

This coming week at TrendInvestorPro we’re introducing two new rotation methods utilizing variations of those ideas. These methods are totally systematic and commerce as soon as per week. They’re aimed toward buyers as a result of they commerce much less often than our rotation dealer methods. Be aware that our S&P 500 rotation dealer technique is up over 40% in 2024. The picture under exhibits the fairness curve for this technique (inexperienced line) and buy-and-hold for the S&P 500 (black line). This technique is up greater than 3 instances buy-and-hold and the drawdowns are a lot decrease due to the market regime filter. Click on right here to be taught extra.

Systematic Methods at TrendInvestorPro

Rotation Dealer for S&P 500 Shares (+43% in 2024)

Rotation Dealer for Nasdaq 100 Shares (+17% in 2024)

Rotation Investor for S&P 500 Shares (debuting subsequent week)

Rotation Investor for Nasdaq 100 Shares (debuting subsequent week)

Click on right here to be taught extra and get two bonus studies.

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