Wednesday, July 23, 2014

Birth of a new Indicator

The Most exciting day!

For those who have followed me a while for now, and wondered if I was alive, Fortunately I have survived to stay in the market. lol, Just took some time to build a bit more sharper tool to capitalize the market way better.

Many followers are obvsly from Promotion stock secrets, they know the power of RSI 3 Pullback. But there must be a question among those, Why not all the RSI pullbacks bounce like the others?. Because not All RSI pullbacks are created equally, there are some difference. The difference mainly comes from Trend, and the Strength of the Trend.

Here is a solution. THE STRETCH.

Why am I calling it Stretch? Because the price chart is stretching away from the Trend.

Using the Analogy of an Elastic, The Histogram is the Stretch. The Cloud can be classified as the Elasticity of the material (in this case, the strength of the trend).

So the Histogram is stretching and the trend is strong. WHAT will HAPPEN? a bounce. (just like a material returning back to its state), and vice versa.

The below indicator is designed around the same philosophy, Using RSI, EMA, BB. Or Rather Multiples of RSIs, EMAs, BBs, KCs and combinations of indicators in a better way to my conscious along with some linear regressions on RSI and short term EMA. I wanted to populate the TTM Squeeze in this indicator as well, But the indicator might get over populated.

This indicator can also be modified to know where the Squeeze could fire (long or short) based on the different combinations. For those who are not familiar with the squeeze. It just a BB squeezing within KC. BB is bollinger band and KC is Keltner Channel.

Below is my version of the squeeze indicator (credits to tradingview mods for helping me build it). For More information on squeeze indicator, Pay John Carter and learn it. I am not up for any copy right infringement deals. This may look like a copy version, But there may be a change, Instead of using the upperband vs lowerband, I approached it differently, by measuring the width of the BB and KC, is there an edge? Negligible, so to speak. You can see in the below image, the squeeze took a day more to signal. Thus avoiding a little noise.

Eitherway, I think it is one of the best way to scan for Stocks in consolidation.

Here is a visual explanation of squeeze indicator

Here are some examples of the how the Stretch worked.
1. The zero line dots indicate the direction of the trend in the underlying,
2. Stretch histogram (pullback against the trend)
3. The dark cloud, indicating the how strong the trend is.

D. Extreme zone (very Rare plays) but solid to pick some nice trade if used right.

Now, This is Way tooooooo valuable for me to trade. Before I open the indicator for public access, the codes for this indicator and the theory is under copyright review. Once, It gets approved will be available for public access. 

Again, Trading is based on probabilities, so not all signals are profitable, no matter how awesome the indicator is. Risk gets higher, as you approach closer to the smaller time frames, and the trades get expensive. SWING SWING SWING with STOPLOSS. Know when and where to stop.

There are more indicators to join arsenal, like 
1. Trend Prediction (back testing the concept), can be used in conjunction with squeeze. 
2. Enhanced MACD histograms
3. Range Bound CCI, with RSI breakout. etc... 


No comments: