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 Gold Customer
Joined: 10/7/2004
Posts: 4
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I am trying to re-create the RS Exit Strategy from the 7/26 Worden Report.The report does not say what group/index to compare the strategy to.
I trade the NDX 100 and the S&P 500 indices and my question is; what should I use as the default index for comparison purposes?
NJ
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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There is no right or wrong answer here. Pick the comparison that is most meaningful to you.
- Craig
Here to Help!
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Registered User
Joined: 1/1/2005
Posts: 2,645
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NJ,
If you are trading individual stocks, you use a broad market index such as SP-500 as the RS Symbol in the RSMA Exit Strategy.
If you are trading a proxy for a broad market index such as SPY for SP-500, then you use a fixed rate of return such as FX20 as the RS Symbol in the FXMA Exit Strategy. There are alternatives obtained by embedding the US market in the world market.
Thanks,
Jim Murphy
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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bustermu,
Was a I wrong and there IS a right answer? One should never use other comparisons like the Nasdaq 100 or the Dow 30 or one of the Russels?
Is the above the right answer or your opinion? It sounds very definitive.
- Craig
Here to Help!
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Registered User
Joined: 12/3/2006
Posts: 278
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Bustermu - I'm confused - nothing out of the ordinary for me though - what I thought I understood was that in trading stocks, you might want to use a fixed rate of return (fx20 or the like) to prevent a steeper slide downward - when your stock and the SP-500 were in sinc - is that what I read??
Thank you - Mike
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Registered User
Joined: 1/1/2005
Posts: 2,645
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Craig,
I should have qualified my previous post with it is only my opinion and not fact. The following will be all my opinion and not fact.
I, and others perhaps, would like to have your comments on my observations.
1) The purpose of the RSMA Exit Strategy is to provide an exit signal when the strength of a Symbol relative to "The Market" begins to weaken.
2) What is "The Market"? The SP-500 is usually considered a good proxy for the US Market. If you were viewing a drug stock, it would seem reasonable to consider SP-500 and also the drug group, MG-510, as "The Market". It would not seem reasonable to consider the energy group, MG-120, as "The Market".
3) Suppose we were viewing the Symbol SP-500. Then what would be a reasonable choice for "The Market"? We might consider the Russell 3000, RUA-X, since the S&P 500 is essentially embedded in the Russell 3000. Please look at SP-500 with Comparison Symbol RUA-X on Logarithmic Scale. They essentially overlay one another. Any RSMA Exit Strategy signals you get in this case should be ignored. The gyrations you see in the RS Indicator are due to amplifying the scale in order to fill the screen and are not significant for present purposes.
4) In view of 3), if viewing SP-500, it seems reasonable change to the FXMA System and demand performance relative to a fixed rate of return.
None of the above should be considered comments on the merits of the RSMA or FXMA Strategies. Any comments on these four items by anyone will be appreciated.
Thanks,
Jim Murphy
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Registered User
Joined: 1/1/2005
Posts: 2,645
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QUOTE (Michaelc1507) Bustermu - I'm confused - nothing out of the ordinary for me though - what I thought I understood was that in trading stocks, you might want to use a fixed rate of return (fx20 or the like) to prevent a steeper slide downward - when your stock and the SP-500 were in sinc - is that what I read??
Mike,
Your initial post did not mention trading individual stocks. It said:
"I trade the NDX 100 and the S&P 500 indices and my question is; what should I use as the default index for comparison purposes?"
That is what I, and I believe Craig, responded to.
Thanks,
Jim Murphy
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Registered User
Joined: 1/1/2005
Posts: 2,645
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Addendum:
Mike,
I just noticed that the initial post was not yours. I have no disagreement with your post.
Thanks,
Jim Murphy
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Registered User
Joined: 1/28/2005
Posts: 6,049
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Michaelc1507
This is just my opinion.
While the SP-500 is considered the "standard" as an
index reference and is probably acceptable to use
in a bull market.
It does have the "flaw" that it can go down.
(Your stock can have high relative strength and just
be falling less)
The concept of the FX indicators is to "guarantee" your
stocks growth rate.
(you know by the relative strength line that your stock is
that strong or better)
Thanks
diceman
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