XBI %R chart essentials

Last post I noted the trades for XBI based on the Williams %R. While they worked out very well there were other things going on in the chart worth noting:



Working along from left to right the previous high of near $70 is just off the chart in August of 2008 and the 100 DMA breaks into a downtrend on October 1st. The price is not really trending but tending down a bit. This is where the %R shines while the price is not going anywhere in particular in the medium term.

There is a triple bottom formed between November 2008 and May 2009. The price starts it's uptrend here after and the 100 DMA breaks up in July triple confirming the new trend. This may have broken now as well except that the price has bounced off of the 200SMA which seems to be acting as decent support.

The red circled area is odd as this is where the %R breaks down. The multiple spikes through the overbought line with no substantial drop toward the oversold AND no confirming price move. Coming off of a likely triple bottom I would be hard pressed to take the short trades here so I would tend toward the long side BUT would wait until the first long signal. That signal showed up and preceded the steep move up.

There was a short indicated in September that I missed noting but see now. Seeing as the previous August high did not surpass the July high a short would be in order here. Even if stopped at $2 up (which would likely be the case for a short) I would not have been stopped out. Entry at $55.15, peak at $56.92 then the drop to the exit indicator at $51.20 for the reversal to the current long position.

Slowly I am coming up with a set of rules to go with the %R style trades.

I know many people go on about cherry picking stocks that fit certain indicators but I find that it is about making the indicator fit the stock or ETF price trends. I've done a lot of "mechanical" testing in the past and it always looks good on paper but the execution was lacking. A lot of that was the subjectivity factor.

Now that I am Trading the US markets and I can place proper stop orders and execute odd lot limit and other orders I think that I will give this one a shot on a small scale. Given the average trade profit of $3.59 with this one ETF I could easily trade 25 shares ($1500 peak cost) as I only need a 40 cent move to break even from commissions. I may give this a try with stock instead of options first. Prove the theory and track corresponding option trades to prove that side of the theory as well.

I will pick a slightly cheaper ETF to try first I think, might as well keep the cost to an absolute minimum.

Jeff.