Short-term oversold at intermediate-term lows can be a powerful combination. Let’s look at the current situation. The 2-day RSI of the SPX closed basically right at 2. The SPX also closed at a 50-day low. Below is a test that shows how this combination has performed since 1985.
We see here a strong inclination for an almost immediate bounce. The edge is very short-term though as it begins to dissipate after just 2 days. Not seen in the table above is that an astonishing 30 of 31 instances closed higher than the entry price at some point over the following four days. The only failure was on March 25, 1994.
5 comments:
I don't understand why the number of trades taken goes down as X goes up? Aren't the conditions you based the study on only entry conditions, and X is just defining when the trade would have been exited, so why are there less trades?
Susannah - I'll take a shot at explaining for Rob - as the time for each trade goes down, you get more trades because the condition is hit more frequently and there isn't a trade on. As the number of days goes up, you'll hit days where the condition is true, but you're already in a trade so you don't take it.
A very important link for all of us traders:
http://www.rallycongress.com/no2tradertax/1536/tell-congres-to-block-trader-tax/
Sunday Night Coffee - Analysis of Upcoming Trading Week - http://chartsandcoffee.blogspot.com/2009/02/sunday-night-coffee-22209.html
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