CHAPTER 9
Intro to Momentum, Including Momentum in Trading

ANSWER 9.1   O US Daily with Slow Stochastic

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  1. This is the Stochastic (slow). It might not be clear that it's the slow Stochastic as opposed to fast, but slow is the default that most technicians use. In any case, the indicator looks similar to the RSI, but can be differentiated as the RSI is choppier.
  2. %K and %D (or SlowK and SlowD)
  3. Black lines are bullish divergence, purple bearish divergence, and red bearish mini divergence.
  4. Arrows show drops out of overbought. There are no instances where both the %K and %D are in oversold territory.

ANSWER 9.2   R US Daily with RSI exponential with simple MA (14, 3) and (50, 8)

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  1. Here, the RSI(14, 3) rose into and then dropped out of overbought, generating an exit long signal. The RSI(50, 8) did not rise into overbought.
  2. The RSI(50, 8) did not whipsaw here, nor to the right of 1, or after the bullish divergence to the far lower right. The RSI(14, 3) whipsawed quite a bit in all three cases.
  3. Bearish divergences are shown in blue.
  4. Bullish divergences shown in black.
  5. The mini-divergence is on the RSI(50, 8).

ANSWER 9.3   Y US Daily with SMAs (5, 13) and Kase Permission Screen

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A longer bar length filter, Kase Permission Screen, displays green giving permission to go long and purple giving permission to go short.

  1. Areas where long whipsaws would have been avoided are circled in green. Because the screen was purple, allowing only short entries, the long whipsaws would not have been taken. This, in turn, would have also meant that any short whipsaws would not take place because any short trades taken earlier would still be in place.
  2. Areas where short whipsaws would have been avoided are circled in purple.
  3. Circled in red, this long whipsaw would have been taken as the screen turns green while the long entry is still in place.

ANSWER 9.4   R US Daily with RSI exponential with Simple RSI Average (50, 8)

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  1. Stop and reverse points are shown by blue arrows, up for exit short, go long and down for exit long, go short.
  2. Exit signals marked by Xs.
  3. First X, bearish divergence took place one bar after the crossover
  4. Second X, bullish divergence took place one bar before the crossover.

ANSWER 9.5   Y Daily with Slow Stochastic

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  1. Date range as marked. Filtered for bearish reversal, Stochastic overbought.
  2. Date range as marked. Filtered for bullish reversal, Stochastic oversold. Note that the chart ends with the market still oversold.
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