My breadth indicator has turned green. You can read more about it here.
As traders, we spend a lot of time thinking about our entries into a trade. What stock, commodity or currency to choose, when is the best timing, etc. But what if the entries don’t matter? What if trading is all about the exits?
Ok, that’s a really simple-minded statement, but I’m a little simple-minded, so stick with me and let’s see where this goes. I wanted to see what it would look like to pick stocks randomly, and exit with a trailing stop.
05/31/ 16 update: it’s back to yellow.
The indicator has turned red. Which might seem strange since it was such a big ‘up’ day today. But none the less, we have had ten days where the breadth diffusion indicator has been below the 75 threshold.
The good news is that breadth seems to be improving. So it might turn yellow and then green again over the next month…who knows?
The “rules” of this “trading system” ** say buy at the next open after the first green day, and sell at the next open after the first red day, which is tomorrow. So I don’t know what the official return would be. But if you’d sold at today’s close, you’d be up a paltry 1.78% from the April 12th open. Which beats a kick in the teeth I suppose.
** not really a trading system. This is just a general market health indicator.
Here’s a free system for you. I call it the “SPY RSI No Lie” system. It’s called that because I like stupid titles, and internal rhymes are an added plus.
I read a post on Jeff Swanson’s System Trader Success recently about using a short-period RSI value to trigger trades with the S&P 500. Jeff’s post was more from a theoretical standpoint, as it used the SPX index (rather than a tradable ETF or future) and also traded on the same day the RSI is calculated. The index issue is easily translated to SPY or an equivalent ETF. Calculating the RSI of the day before the day is actually finished is, well, technically impossible. But in practice, it’s doable in a sort of almost/kinda/fuzzy-round-the-edges sort of way. I thought I’d take a look at an easily tradable system.
For the first time since developing The Indicator, it has turned green. FWIW.