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James Charles wrote:
> Hi Guys,
>
> Some of you have been debating whether to take the RSI of stochastics or
> the stochastics of RSI. In my more technical days, I found the most
> useful way to combine these two indicators is to take the SLOW
> stochastic reading OF the 14 day RSI. That means the slow stochastics
> is smoothing the raw RSI. Then you can use turns from overbought and
> oversold and/or crossovers to trade. The only problem is that I don't
> think you can trade systematically with this indicator and produce a
> profit. That is why I don't have it posted on my charts. Remember,
> only the SLOW stochastics will give you the smoothing you need.
> Metastock 5,3 stochastics or fast stochastics won't work for this. You
> will then have a first derivative of RSI. Other ways to smooth RSI
> include a moving average or even an MACD histogram of RSI. But don't
> bother to go through the trouble. These indicators look sharp but they
> won't put money in you pockets. Better is to use straight stochastics
> and look for signals that occur during divergences from price along with
> confirmation from another indicator plotted from price such as MACD
> histogram, or another indicator plotted with price and time like
> trendline violations.
>
> Best wishes,
>
> James
Traders:Personally, I think we really need to keep these indicators in their
simplest form. I don't use tons of indicators for my trading strategies.
Metastock and other trading programs provide hundreds of indicators for
trading. As far as I'm concern, most of them are impractical to say the
least. MACD and RSI are for trending phase and Slow Stochastic is good for
ranging or consolidative phase of a market. Using the wrong indicator(s) in
a trending and nontrending phase, you're going to find yourself in a world
of hurt. If I HAVE to use an indicator to trade, I will just go for the
9-day RSI WITH trendlines being drawn on it. The ONLY justification for
market entries is when the RSI has diverged along with the breakout of the
trendline. The safest entry point is when the indicator has 1) diverged 2)
breakout of trendline and 3) the indicator pulls back for the 'kiss'. Of
course, this setup doesn't happen all the time. But 1) and 2) HAVE to be
met for market entries when utilizing RSI indicator. Keep your analysis as
simple as possible.
Have a good one
Jeff Harteam
Hong Kong
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