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Sunday, August 22, 2010

13 technical trading systems and rules by Fred Tam

System #1. Simple Moving Average Crossover Method

BUY : Close > S.M.A(30)
SELL : Close < S.M.A(30)

Note : For longer term trader/investor, you may want to change the user-defined period to 50days or 100days. Otherwise, one may use 20days or even 10 days. The probability of 'failure' will be higher for shorter time frame but by using the longer time frame, one may have bought it 'too late' as it is a lagging indicator. System #1 stated here is the easiest to teach ANY novice and it is widely used by investors or someone who DO NOT trade much. Personally, I am using SMA(20).

System #2. The Dual SMA Crossover method

BUY : Shoter SMA > Longer SMA
SELL : Shoter SMA
Note : There were once(in 2-3 months) where I traded using only this system, but as I traded in a shorter time frame, I was using MA(5) and MA(20), if I m not mistaken. The success rate is quite OK but it still lags behind. A combination of system one and system two could be used for more conservative traders. For example, we may want to make sure it is trading above MA50(system #1) and then use the crossover of MA5-MA20. Again, the combination of system # and system #2 is commonly used. And it is easy to teach/coach anyone to use it. Those you want to learn to use the system #1 and system #2 may contact me, pay my dinner(I m a great eater, ok?) and I could explain these methods in half hour! hehe.

System #3 : Dual Exponential Moving Average Crossover Method

Note : Similar to the above but instead of using SMA, it is using EMA. Do not need to bother the difference as there is 'not much' for most of us. It is for Maths-geeks. I m NOT.

System #4 : Relative Strength Index (RSI-14)

BUY : RSI > 50
SELL : RSI <50

Note : I never use this one instead using it in a contrarian manner. As RSI moving below 30, it is considered as OVERSOLD technically. So, I will star to zoooom into those good stocks that in my stalk list and searching for oversold stock(s) to buy. The other way is also true ... when RSI moving above 70, it is said to be OVERBOUGHT technically. So, I will start to feel uncomfortable and will like to clear it ASAP. The gains may be less than I expected as I failed to hold-on to it(due to fear that it dives soon!!) and as I m buying oversold stock(s), I may need a longer time frame IF I m using RSI alone.

For example : Tech and rubber stocks are oversold at the moment. So, with contrarian mindset, I do like these sectors now. The only 'problem' might be .. which one should I choose from? Placing a longer time frame(3-6 months), I bought largely into JCY(recently cleared half to diversify into Unisem) and TopGlove(looking at Supermax too).

Personally, since I discovered RSI 2yrs plus ago(at the initial stage of my charts learning), it is one of the most commonly used indicator. And recently, after joining CN, using its charts, I am also using RSI-9 for 'quicker' indications(of overbought or oversold).


TopGlove : Next level of BUY at 5.50. I saw someone posted in CN's forum that TopGlove forming ascending triangle and a break below it current support at 5.95, I will like it at 5.50.

TEH

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