In one of my previous Tips and Tricks ( #3) I have told you guys why buying in Overbought could be profitable.
Now I am going to tell you when to buy Oversold. Treat the following as a starting point with RSI to scan for stocks.
There are two ways to apply this strategy.
1) Finding a long term Momentum direction (and / or).
using CCI (150 or 200) would be better.
2) Find the major trend.
using 200 SMA
Lets just see the most simple option first.
Step 1. This is a generalized statement observed (or used ) in the market “The long-term trend is up when a security is above its 200-day SMA and down when a security is below its 200-day SMA. Traders should look for buying opportunities when above the 200-day SMA and short-selling opportunities when below the 200-day SMA”
Step 2. Use Daily RSI(3) and find tickers trading below 15 (I like 10) for buy and 85 (I like 90) for sell on RSI chart.
Time for a sweet example (I don't see a point in posting 100 of charts showing this, I would recommend you to go through that exercise to get a feel for the strategy).
Remember there is risk, trading whatever your strategy is, we can minimize the risk to certain level, That’s about it.
In the following chart, you can see the horizontal lines (dotted blue lines), showing signals of RSI (3) buy and trading above 200 SMA. Yes, there are about 4 bad signals, but learn to take the good ones. And get rid of the crappy ones with a stoploss as quick as possible.
For friends and Promotion stock secret members, if you are looking to fine tune this strategy send me an email.
Below is the stockcharts.com scan code
(btw, i am not selling stockcharts, I just like it for scans)
[type = stock] and [group is not etf] and [today's sma(50,volume) > 100,000] and [daily close > daily sma(200,close)] and [RSI(3) < 15]
I have fine tuned this scan for personal use, its more complicated for a budding chartist, the goal of my blog is to keep things simple.