Breadth-Based Momentum Swing Strategy/Trend Indicator
This is an interesting strategy.
From my little bit of back-testing, RSP seems to work best just because it is a breadth indicator.
Seems to work better in more volatile times with bigger moves.
Daily timeframe only. Basically, tracks overbought and oversold conditions but can signal momentum shifts and trend. Looking for long trades above, short trades below.
Don't use it alone, use it in confluence with your TA.
3 Major components:
- RSP (SP500 Equal Weight Index)
- S5TW ticker added to chart (SP500 % of stocks above 20MA)
- Ripster EMA cloud
Indicator setup:
- Add S5TW Line Chart as an indicator in a separate pane
- Apply EMA cloud to S5TW (9 ShortEMA1 and 21 LongEMA1, disable all others)
- Set both scales to Regular (will set to % automatically)
- Add two horizontal lines at 85 and 15, these indicate overbought and oversold levels (you can do 80/20 or 90/10 as well)
You technically could just buy/sell the EMA crosses, but your entry will not be optimal. There are three things you want to look for when a reversal is happening:
- Bull cross:
1. Price to cross over EMA cloud definitively (MINIMUM 2 candles)
2. Higher high on S5TW, higher low after for confirmation (HH and over 2 days above should be good enough)
3. Move across the 50% midpoint
- Bear cross:
1. Price to cross below EMA cloud definitively (MINIMUM 2 candles)
2. Lower low on S5TW, lower high after for confirmation (LL and over 2 days below should be good enough)
3. Move across the 50% midpoint
After the reversal, you can take three approaches to exiting:
- Exit once overbought/oversold
- Exit with trailing stop or to price target
- Exit with opposite reversal
This back-test used the exit with opposite reversal strategy. The max drawdown from this small sample size of back-testing is just under 3%, but every trade ended up winning.
- 100% win-rate out of sample of 11 trades.
- Average move is 6%
- Smallest is 0.42%
- Highest is over 11%.
Gonna be fun to track this.
From my little bit of back-testing, RSP seems to work best just because it is a breadth indicator.
Seems to work better in more volatile times with bigger moves.
Daily timeframe only. Basically, tracks overbought and oversold conditions but can signal momentum shifts and trend. Looking for long trades above, short trades below.
Don't use it alone, use it in confluence with your TA.
3 Major components:
- RSP (SP500 Equal Weight Index)
- S5TW ticker added to chart (SP500 % of stocks above 20MA)
- Ripster EMA cloud
Indicator setup:
- Add S5TW Line Chart as an indicator in a separate pane
- Apply EMA cloud to S5TW (9 ShortEMA1 and 21 LongEMA1, disable all others)
- Set both scales to Regular (will set to % automatically)
- Add two horizontal lines at 85 and 15, these indicate overbought and oversold levels (you can do 80/20 or 90/10 as well)
You technically could just buy/sell the EMA crosses, but your entry will not be optimal. There are three things you want to look for when a reversal is happening:
- Bull cross:
1. Price to cross over EMA cloud definitively (MINIMUM 2 candles)
2. Higher high on S5TW, higher low after for confirmation (HH and over 2 days above should be good enough)
3. Move across the 50% midpoint
- Bear cross:
1. Price to cross below EMA cloud definitively (MINIMUM 2 candles)
2. Lower low on S5TW, lower high after for confirmation (LL and over 2 days below should be good enough)
3. Move across the 50% midpoint
After the reversal, you can take three approaches to exiting:
- Exit once overbought/oversold
- Exit with trailing stop or to price target
- Exit with opposite reversal
This back-test used the exit with opposite reversal strategy. The max drawdown from this small sample size of back-testing is just under 3%, but every trade ended up winning.
- 100% win-rate out of sample of 11 trades.
- Average move is 6%
- Smallest is 0.42%
- Highest is over 11%.
Gonna be fun to track this.
Comment:
volatility on these readings rn is interesting. could mean that a lot of stocks are dancing around their 20emas as support/resistance. pretty pivotal moment soon.
Comment:
shouldve included a line at the 50% mark, seems to be where decisions like to be made.
Comment:
any strength in breadth here and we could get a nice bounce
Comment:
that breadth divergence definitely hinted at this serious move over the last 2 weeks