Buy And Sell Triggers
Short-Term Volume And Price Oscillator
Using the turning points in the oscillator gives profitable trades. Come look.
Before telling you about the construction and application of the short-term volume and price oscillator (SVAPO) I am using, let's talk about some basics using an indicator as a buy & sell trigger. The indicator must have clear reversal points and be as fast as possible on the entry side. The faster you can get in at a price reversal, the tighter your initial stop-loss can be. This will save you a lot of money on those trades that move the wrong way.
A trailing stop-loss, which is a stop-loss order that follows the prevailing price trend, is best set in relation to your investment horizon. Are you a swing trader trying to catch all the shorter profitable price moves, or a medium- to long-term trader trying to stay in the trade to capture the extended bigger price moves?
OSCILLATOR AND PRICE RELATION
There is no ideal indicator, which is why you have to protect your investment
with a stop order. Using an oscillator as the only reference to enter or
exit a trade is not a good idea. The oscillator should instead be used
as an alert for having a closer look at the chart and only then making
a decision, taking into consideration all possible technical analysis tools.
FIGURE 1: THE PERFECT SIGNAL (NCR, DAILY). A buy signal is given when the oscillator reaches the lower boundary and reverses. A sell signal is given when the oscillator is at the upper boundary and turns down. The oscillator here is fast and marks the exact top and bottom turning points.
The perfect pair: Now and then the oscillator you use is perfect.
In the daily chart of NCR Corp. (NCR) in Figure 1, you get an ideal relation
between the oscillator at the top of the chart and the price at the bottom.
A buy signal is given when the oscillator reaches the lower boundary and
turns up. A sell signal is given when the oscillator is at the upper boundary
and turns down. The oscillator here is as fast as it can be and marks the
exact top and bottom turning points.
...Continued in the November issue of Technical Analysis of STOCKS
& COMMODITIES
Excerpted from an article originally published in the November 2007
issue of Technical Analysis of
STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2007, Technical Analysis, Inc.
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