The “SPY RSI No Lie” Swing Trade System

She's thinking about how financial blogs can be a bit boring when they have too many graphs.
She’s thinking about how financial blogs can be a bit boring when they have too many graphs.

 

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.

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Chasing the Momentum-Burst Unicorn

unicorn-stocks-fin

A reader of my blog, Matt B., commented recently on an old post I’d written about momentum bursts. Like me, Matt was intrigued by the short 3 to 5-day momentum bursts he saw described time and again on Pradeep Bonde’s stockbee site. Those bursts look so pretty, so elegant, and more to the point: so profitable.

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The Myth of Scaling Out

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Photo by Winnifredxoxo. Used under Creative Commons License

A common tactic for some traders is to scale out of successful positions. The logic is this: I’ve already made some money, so I want to hold onto some of that. I’ll cash out a portion of my trade now, and see how the trade continues, but with reduced risk. You see this behavior with day traders, as well as long-term investors.

But it’s a fallacy.

And it’s costing you money.

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