I am experimenting with some screens that will identify stocks that are overbought on multiple time frames.
The screen below finds stocks with a RSI(2) reading above 99, and then calculates the distance the stock is in percentage terms above the 10 day moving average.
I don’t know that there is an edge to shorting stocks with both an extreme RSI(2) and price stretched above the 10 day. In fact, it might be a better long setup. Anyway, today’s screen turned up some interesting charts, for both longs and shorts.
Here are the results below. Volume is the 10 day moving average of volume and Distance is the distance the stock is stretched (in percentage terms) above the 10 day moving average.
so this is a “wait for the pull back to go long” screen as well as a “short at the open” screen?
Hard to say Cuervo. I haven’t tested this as an entry condition. I guess whether they are longs and shorts depends on any bias. A lot of them look like momo plays to me. More than anything I’m just experimenting with AmiBroker screens.
I looked over the charts for all of the tickers seen above. Even without the system (which is pretty inventive if I do say so myself) these tickers look like power dip trades minus the explosive biotech gambles (MAPP and OCLS). ZQK, UTHR, NXG, and IRF are all trading in breakout fashion.
Just goes to show that Technical Analysis, with the help of technical indicators, can really get the job done.
One issue is you are potentially picking up some incredible Relative Strength. Stop losses in order?
I’ve used extreme RSI(2) and a couple other variables to create an effective short system. It can be a nice complement to a RSI(2) long system. However, I’ve found that stops are much more important in the short system because momo can continue driving price higher than one would expect.
Hi WS,
Would you say you use anything like artificial neural networks for your systems? I’ve been reading up on it and am thinking to try it out with a simple implementation.
Bee, can’t say I do use neural networks. I am very curious though and have completed just a bit of reading on them. Please update us if you would like, on your implementation.