Saturday, August 14, 2010
We have examined a few breadth indicators over the past few weeks, but you can also use a simple concept such as moving averages to get you in and out of the market. Ideally, the best system would use a combination of market breadth and trend to indicate the prime trading zones. For instance, you could apply this moving average concept with a breadth thrust signal to support the signal.
This indicator uses three simple moving averages; 5 period ma, 10 period ma, and 20 period ma. When the moving average are in proper positions 5 > 10 > 20 you get an entry signal. I've also applied my standard 5 ma < 10 ma as an exit parameter. You could use this signal to tighten stops on all positions and/or take profits.
The green up arrows would indicate the trading zones, while the red down arrow would be an exit alert.
This is not an indicator I use on a regular basis but I was looking for a concept I could easily illustrate to people who were curious about market timing.
You can find the shared layout in StockFinder under "PatientFisherman_3TrendSignal".