i recently published the Strength of Movement indicator - Wanted to take a minute to share an example of the setups i'm trying to explore with that indicator.
as i mentioned, for a position trader watching a specific set of stocks, the opportunity to catch and ride a "quality trend" occur few times a year, maybe as few as 2 or 3 times - and when they do, and if timed well, they provide very rewarding and low risk trades - with a choice to use basic options to maximize profit - of course that depends on the trader's capital and risk tolerance.
- the example i share here is for AAPL - and shows 4 such opportunities / setups since the beginning of 2019 (27 months) ..
* initial chart settings: -------------------------- - to explore these setups, i preferred to look at the weekly chart, and to set the SoM to averaging length = 12 -- all other settings left as default - i also chose to combine a MACD to show momentum and the Ribbon to help visualize the trend - you can use any other indicators that you're more familiar with and trust
- we'll consider only long setups since we're overall bullish on AAPL
* reading the chart & finding the entries: --------------------------------------------------- - the initial signal for an incoming trend is when the SoM oscillator line crosses the zero line going up - on the chart these are marked with the green arrow up and a blue vertical line
- the primary signal that the "trend has been established" is when the "SoM raw" line (light blue) hits the 100% - marked on the chart with a star *
- very important: the confirmation of the setup is provided by the MACD (and the Ribbon, i look specifically at the zero-lag line of the Ribbon as it's the fastest to detect reversals). now if we're not familiar with the stock we would consider the first occurrence invalid, since the MACD is in "negative territory" and reflects only a "possible fade of current bearish move" - and not really a reversal sign - however, since this is AAPL and we're overall bullish - for us, this represents the end of the "dip" and can expect the price to continue to move up -- please be very careful here if you're trading stocks that you're not fully familiar with their behavior and expected growth trajectory
* exiting the trades: ---------------------------- - the possible duration of each of these trades are marked by the blue arrow on the price chart - but that's hindsight :) - we should close the positions either on a certain target, or as the trend dies down (SoM oscillator crosses zero going down). i would rather close early and lock profit, then ride the next wave up than having to hold thru a wave down and recover - can use a zoomed-in chart (the daily, 2hr) to better time the exit
* in conclusion: ------------------- - i have actually traded couple of these runs (without the SoM) and not necessarily opened or closed my positions as perfectly as in the above chart :) but now with the SoM, i hope i'm better prepared for future setup. - i hope this is useful.. please feel free to share feedback or questions. ...... and best of luck :)
This is great work. Would you keep the SoM average length at 12 if you used a smaller time frame chart (daily)??
RedKTrader
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@callsandputs, it really depends on your "time horizon" - the way SoM is meant to work is, the price change (for example, the % increase) has to keep at the top of its prior range so the SoM stays at 100% since it's a stoch() function - in the above chart, we're looking for trends that continue for many months (hence the choice of 12 weeks = 3 months) -- if you're using this to explore trends for 2-3 weeks, and you use the daily, i would use a setting between 7 and 10 (so = 1.5 week to 2 weeks)
hope this makes sense.
callsandputs
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@RedKTrader, It does. Thank you for the quick response!
Excellent indicators combination and its strategy...just a suggestion, like you have explained, can you change the code to include the yellow/ green arrow like u have stated above, that will be really helpfull visually
RedKTrader
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@rkayasth, thank you for the feedback - i'm a believer that too many visual signals can get distracting and add little "real" value, but will consider the feedback for the next update.
rkayasth
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@RedKTrader, yes pl.... let me know once you do it... Have started using your indicator strategy for now atleast, since its simply great
ely2727
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Omg! This is a gem! I used the same setup as yours..
Thanks a lot for explanation !