| These contributions are from Mike Bruns, world class trader.
Mike's clear thinking and charts have allowed for many traders to finally
"get it". His generous sharing and teachings have helped me raise my
level of trading. Reinforcing the concepts of trading with the trend, his knowledge
of the bond market and other markets. Mike also gives after market hours
seminars for members, they are exceptional. My personal thanks Mike...NQoos
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REI Additional Note
A period of five or fewer days in
the overbought / oversold zone constitutes a mild reading regardless of the
extremity of the reading: a period of more than five days translates into a
severe indication.
Specifically, markets reverse when modest or mild
overbought / oversold readings are recorded: whenever extreme readings are
registered a "recycling" process must occur. The indicator must move
into a neutral zone and then record a second mild (rather than severe) indicator
reading to signal a reversal.
This dichotomy of severe vs. mild readings is
consistent with divergence analysis and explains why this technique sometimes
seems to work: The initial thrust into overbought / oversold territory is
generally severe (more than five days), and is followed by a move into the
neutral zone and a subsequent milder overbought / oversold reading.
Concurrently momentum often propels price above or
below its previous extreme, and a divergence occurs. When a mild reading is
about to move into a neutral position a price reversal generally takes place.
Through research and experience I have defined an
overbought / oversold band of +45 to -45 for the five day REI that helps
identify impending price changes.
If the indicator remains above or below these levels
for more than five consecutive days (a severe or extreme reading), postpone any
trading activity until the indicator has "recycled" by re-entering the
neutral area between +45 and -45. If it remains above or below the extreme
levels five days or less (a mild reading), prepare for at least a short-term
price reversal.
Qualifiers A simple
and conservative method to confirm a price trend change is to wait for the
indicator to penetrate either the upper or lower indicator band and exit that
zone within a period of five days.
A more aggressive approach is to identify the first
daily close greater than the previous day's close that is in turn preceded one
day before by a price low less than the price low two days earlier, coincident
or after an indicator reading below -45: or conversely, the first daily price
close less than the previous day's price close, which is in turn preceded one
day before by a price high greater than the price high two days earlier
coincident or after an indicator reading >
+45.
However, this approach does present the user with an
element of risk; if the indicator remains either below -45 or above +45 for more
than five days, then prudence dictates you should exit the position. Because the
first qualifier technique above is straightforward, I will concentrate on the
second complicated approach.
The overbought and oversold zones are highlighted in "Timing market
turns" . The first subsequent up and down closes are identified with
arrows, provided that day is preceded by a price low lower than the previous
day's price low (at a bottom) or price high greater than the previous day's
price high (at the top). In the two instances in which the REI oscillator
remained in overbought territory for more than five days, a failsafe exit
appears.
These approaches are objective, mechanical and confront the
nemeses of other commonly used indicators - namely, exponential distortions
caused by random extraneous events, the subjectivity of divergence analysis, the
preoccupation with closing prices, the inclusion of irrelevant price activity,
and the inability to present a formal, mechanistic analytical approach to
identify high- and low-risk entry points. Through research and experience I have
defined an overbought / oversold band of +45 to -45 for the five day REI that
helps identify impending price changes.
If the indicator remains above or below these levels
for more than five consecutive days (a severe or extreme reading), postpone any
trading activity until the indicator has "recycled" by re-entering the
neutral area between +45 and -45. If it remains above or below the extreme
levels five days or less (a mild reading), prepare for at least a short-term
price reversal.
Explanation provided by
Capital West Investment Group, Inc.
Remember that personally, I trade primarily with the
direction of the moving average (MA). This
is my first and most important indicator. I
use the 30 period weighted moving average, “30WMA”.
So I look for sell signals when the MA is pointed down (Fig. 10), buy signals when the MA is pointed up (Fig.
10). When the MA is
basically flat, then the REI signals are oftentimes questionable (Fig. 11).
When the MA is flat for an extended time, buy and sell signals can
be valid and make for very profitable scalping for the seasoned trader.
Choice of Time Frame (TF) is critical
|
miracles,
they are everywhere.............. 
