A Stock Market Timing Secret Revealed

Relative Strength Index (RSI) is a well known andIt's important to separate between the daily and
much usedweekly charts used
momentum indicator. It was invented by J.for each indicator.A less aggressive approach is
Welles Wilder Jr.,then to wait for the high of the weekly
a great technical analyst.RSI compares thebar that caused the Cycle10 reversal, to be
magnitude of a stock or index's recent gainsbroken by a few points.
to the magnitude of it's recent losses and thatDepending on the risk tolerance, a protective
information isstop can be placed a
turned into a number that ranges from 0 to 100.few points below the swing low or below the low
A singleof the bar which caused
parameter is used, the number of time periodsthe weekly Cycle10 reversal. When weekly
for the calculation.MACD's signal line crosses it's
14 periods is recommended by Wilder.Commonmoving average, a bullish trend reversal
practical use of RSI in stock market timing is toconfirmation is given.Taking Profits
measureDeciding when to take profits is often viewed as
the underlying strength of the market and tothe most difficult
determine if it'spart of trading. I would consider taking profits,
getting overbought or oversold. Wilder's ownwhen the 38.2%,
recommendation was to50% or the key 61.8% Fibonacci retracement
use 70 and 30 levels, to indicate an overboughtlevels (of the previous
and oversold market,bearish trend) are reached. It depends on how
respectively. If RSI rises above 30 it's consideredoverbought the market
bullish for thehas become, when those Fibonacci retracement
stock or index. If the RSI falls below 70, it's alevels are touched.
bearish sign.Bullish & Bearish DivergencesStrongerAnother, usually slower approach, is to simply
buy and sell signals can also be generated bytake profits when MACD
lookingturns bearish again (MA crossover).The odds for
for positive and negative divergences betweena successful trade would increase if weekly MACD
the RSI andhas just
underlying prices. For example, a falling marketbeen through a bullish divergence pattern
index whose RSIformation first, before
instead rises from a low point of 10 and back upentering bullish mode (MA crossover).Other profit
to above 50. Thetaking suggestions are when weekly Cycle10
underlying index will often reverse it's directionmakes a bearish
soon afterreversal up in it's sell zone (closing basis). A
such a divergence. Divergences that occur afterdrawback with this
an overbought ormethod, is that Cycle10 doesn't always reach it's
oversold reading, usually gives more reliablesell zone, before
signals.Center Line Breakmaking a bearish reversal.Another good point to
A bullish or bearish indication is given withtake profits, is those times when the key 61.8%
readings above andFibonacci price level is reached and Cycle10 at
below the 50 level. A reading above this centerthe same time is in it's
line indicates thatsell zone. In this case a bearish Cycle10 reversal
average gains are higher than average losses. Ais not waited for.
reading below 50Any market wants to reach it's key 61.8%
indicates that bears are winning the fight. ForFibonacci zone, 60-70% of the
confirmation oftime, before making a new trend reversal.Short
bullish and bearish signals, some traders look for(Bearish) Entry Parameters:
moves above andWeekly MACD must be in bullish mode (closing
below 50, respectively.Below is the author'sprices).
special indicator combination and settings,When daily RSI rises above 60, weekly Cycle10
for short & medium term stock marketmust be in it's sell zone
timing.Daily Chart:(above 70) and make a bearish reversal on a
- 200 ema (exponential moving average)weekly closing basis, before
- 89 ema (closing prices used for both emaentry. Again, a less aggressive entry, is then to
calculations)wait for the low of the
- RSI set at 25 periods with horizontal lines at 60bar which caused the Cycle10 reversal, to be
and 40Weekly Chart:broken by a few points.
- Walter Bressert's Cycle10 plotted withA protective stop can be placed a few points
horizontal lines set at 70 and 40above the swing high or the
- MACD plotted with Signal Time Periods set athigh of the weekly Cycle10 reversal bar. When
5By the use of a 25 period RSI on a daily chart,MACD's signal line crosses
in combinationit's moving average, a bearish trend reversal
with Cycle10 and MACD, plotted on a weeklyconfirmation is given.Taking Profits
chart, larger tops andThe same suggestions as for the Long entries, it
bottoms can often be found. This special indicatordepends on how long you
setup can be aare willing to stay in the trade. When the 38.2%,
contributing factor for more accurate stock50% or the key 61.8% Fibonacci retracement
market timing, althoughlevels (of the previous bullish trend) are reached.
no guarantees are given. Examples for 2005 areWhen weekly Cycle10 makes a bullish reversal
the significant Aprildown in it's buy zone.
and October lows in the OEX, (S&P 100) whereWhen the key 61.8% Fibonacci level is reached
the RSI dipped below 40.Later in 2005 and so farand Cycle10 at the same
in 2006, three RSI moves above 60 all alertedtime has entered it's buy zone, without waiting
about important OEX peaks, in November,for a bullish reversal.For your profit taking
January and March.Below is how i use this as andecisions, the 89 and the 200 EMA, plotted on the
alert system in my own technical analysis:By using
this 25 period RSI, instead of the standard 14daily chart, can also be used as important
RSI, someresistance and support levels
whip-saws will be filtered out. When RSI 25to be aware of.In general, not more than 2-5%
climbs above 60of the total trading capital should be at
or falls below 40, odds are greater morerisk in any trade. This prevents the trading
significant tops andaccount from being wiped out,
bottoms are forming, respectively. This part ofwhen a streak of losses may occur, as can
the system actshappen in any system.The trading strategy
as a warning, a trading opportunity shows up onoutlined in this article is in no way the "holy grail"
the Long or Shortof stock market timing. It's an opinion of when
side and more attention is given.Long (Bullish)important market tops and
Entry Parameters:bottoms can be expected and hopefully be
Weekly MACD must be in bearish mode (closinguseful information in this regard,
prices).a tool in the tool box, if you like.(c) Copyright
When Daily RSI closing readings falls below 40,Arild MyklebustArild Myklebust publishes a Free
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