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Registered User
Joined: 12/31/2004
Posts: 163
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Hi,
I am looking at 2 charts BID (Sotheby's) and CPL (cpfl Energia).
Of the indicators I'm using: SMAs, CCI, MACD, and RSI.
These indicators for these two stocks look pretty much the same on Sept. 15th when I put them into a watch list.
I'm now viewing that watch list and see that even though their indicators looked very similar on Sept. 15th, they have performed very differently. BID +316% (annualized) and CPL +10% (annualized).
Does anyone know of another indicator which would show/suggest that the future performance of one stock might be better than that of another stock when these other indicators look very similar?
Bill
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Registered User
Joined: 1/1/2005
Posts: 35
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Most likely you will not be able to predict this with any accuracy...no matter the indicator.
I like to use a relative strength line(versus the S&P500) and a 40 bar moving average. Use a 20 bar(or less)MA for shorter time frames. You can experiment to find the correct MA for your trading style. Then consider the slope of the RS line. Is it rising or falling? Is the RS line above or below the RS moving average?
The better performing stocks should have a rising(up sloping) RS line...and optimally, it should be above it's rising RS moving average.
You can also use trendlines over the RS line. RS lines that are currently breaking above trendlines(bounded over the trend highs or under the trend lows) I use "snag it" software to get a screen capture of the chart. Then I can draw on it with the snag it software. This enables me to draw trendlines in the indicator windows. snag it software is great! You can get a free trial..and then buy it like I did for a small fee. Do a google search to find the download link for snag it.
So...if you have a list of four stocks that you are considering for purchase, and want to know which is likely to outperform the others, the RS exercise I described will possibly help you decide. The stocks that have rising RS lines, and are above their rising RS moving averages are perhaps your better choices because they are in demand now and are outperforming most other stocks at the time of analysis. Current and past performance however do not guarantee future performance.
Reverse this exercise for shorting.
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Registered User
Joined: 1/1/2005
Posts: 35
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another thing to consider...
Let's assume you have four possible trades and only want to pick one to go with. Go ahead and figure out where you would place the stop loss for each trade based on your technical chart analysis. Then pick the trade that has the closest stop loss of the four. This means that you are taking the trade with the better risk/reward ratio. That's a good way to choose one trade when you have several to choose from.
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Registered User
Joined: 1/1/2005
Posts: 35
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Last thing....regarding the RS line...and it's moving average
Let's say you have 5 stocks to choose from. Now let's say that 2 of the choices show that teh RS line is above the RS moving average and the RS moving average is rising, while 2 stocks show that the RS line is falling and below a falling RS moving average, and finally one of the choices shows that the RS line is just now breaking above it's MA at time of analysis....
My conclusion would be to quickly eliminate the 2 with negative RS lines. Then I'd probably choose the one stock that showed the RS line breaking above the MA at the time of analysis. A new break above the RS moving average is more signifigant to me than one that broke above the MA say 4-5 days ago.
It's also generally positive when volume indicators(and a host of other indicators as well) confirm the RS signals.
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Registered User
Joined: 12/8/2004
Posts: 213
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You indicate you are using 4 indicators. Those 4 are overlapping indicators and can be broken down into 2 categories which means you can eliminate two of them. I would eliminate CCI and MACD because RSI and SMA are easier to use.
Good luck
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Registered User
Joined: 1/1/2005
Posts: 35
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Just so there's no confusion...
When I say moving average(above)...I am talking about the moving average of the RS line...not the price MA. So you'll have to bring up RS (versus the S&P 500) in an indicator window...and then add a RS moving average to that same window.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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halliday
You are making the mistake of thinking indicators create price movement.
Indicators measure price movement.(and other factors)
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Imagine you have a stock that falls 10% in a week and is 1% above its 100 day
moving average. You have another stock that has rallied 10% up and is
1% above its 100 day moving.
Same "reading" different story.
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If you look at the price % change from 1-13-06:
Bid = 74.95
CPL = 0.22
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Bid was always the "winner" between these two stocks because of its
intermediate upward price movement.
CPL has been down to flat for some time.
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Zoom in until you have this years price data on the chart
and toggle back and forth between the two charts.
I suggest you add some type of momentum measure.
Thanks
diceman
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Registered User
Joined: 12/31/2004
Posts: 163
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I didn't mention how I found these stocks. I have a scan for when the dpo (detrended price oscillator) of a stock goes from negative to positive. By asking my question, I'm hoping to get a really good confirming indicator to work with the others I'm looking at.
I wanted to thank each of you for taking the time to post a response to my question. I want to continue reading your posts and hope you will write them.
Shatterd - I like that RS approach. I looked at the 2 stocks; BID's RS to SP-500 was clearly rising while CPL's wasn't. In fact on the date (09/15/2006) that I first started following them, the RS Line of BID, it's 20 period average and 40 period average all crossed each other. (Maybe not on the same day, but within a day or so).
Sir Bollinger band width - I know several indicators measure the same things and others measure other things, I just never could remember which was measuring what. I just started observing a SMA crossover technique and just started looking at the accompanying CCI and like the simplicity that crossing up through -100 and down through +100 are suppose to be buy and sell signals. I haven't made a purchase using these indicators together, I'm just trying to see what these indicators are telling me.
diceman - Interesting how it becomes clearer when you look at a stocks chart from a rate of change perspective. That was kinda in the direction I was thinking. I was thinking range or volitility. The more price swings the better return. Of course, I know it can't be that simple! But it's the direction I was leaning in.
Am I starting to think in the area of momentum? Is that RS comparison to the SP-500, Shatterd talked about, a momentum measurement? How do I go about measuring momentum? As I explained to Sir Bollinger band width, I got a problem remembering which indicators measure what!
Thank you.
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Registered User
Joined: 12/31/2004
Posts: 163
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diceman
Pardom me! In reviewing your post, I see you said Price % Change, not Rate of Change. How do I calculate the Price % change?
Is it just today's Close divided by the Closing Price from some fixed point on the chart minus 1?
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Registered User
Joined: 1/28/2005
Posts: 6,049
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Percent change 10 days:
(C/C10*100)-100
(you will need to determine what length
or lengths fit your trading style)
For certain points from lows to highs.
(on the SP500)
You can also use the custom date sort feature.
Thanks
diceman
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Registered User
Joined: 1/28/2005
Posts: 6,049
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halliday
You may be interested in the techniques described here:
Indicator Color, Visuals, and MACD.
I usually like to take indicators I would use anyway. Like a
20 day moving average and turn it green or red based on indicator
buy or sell signals.
Thanks
diceman
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Registered User
Joined: 1/1/2005
Posts: 35
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Lots of indicators measure momentum is one way or another. Such as...
MACD
Stochastics
RSI
ROC
I like the ROC..as it seems to lead price.
Watch stocks that have been in downtrends, plotted with a ROC window beneath. You'll notice that ROC lines often turn up before price turns up. I like to use trendlines drawn over declining ROC lines. Eventually the ROC will break the trendline to the upside...followed soon by price.
You'll need some other confirmation rather than just relying on ROC. Such as a bullish divergence of some sort..as on the MACD or MACD histogram...or maybe a confirming price pattern such as a double bottom, head and shoulders bottom, or perhaps a bullish candle pattern that shows you are at a support level(bottom). Such as a bullish engulfing, bullish piercing line, morning star, doji, etc.
That said...I prefer the Relative strength exercise mention previously(plotted with a RS moving average). The RS shows that this particular stock is showing some sort of temporary favoritism by the market over most other stocks...for whatever reason. It's generally a good bullish sign when a particular stock is outperforming the market on good volume. This is a clever way of trading with the insiders(smart money) even though you may not necessarily know why they are liking the stock. Technical analysis doesn't need to concern itself with reasons. If you wait for the reasons then you are usually left behind...and then it's too late. Any information known by everyone else isn't worth acting upon.
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