Using
Buy & Sell Signals & Screening Stocks
Please note that
we have used historical data.
These examples are for educational purposes
only.
In this
article we'll look at the use of technical buy
& sell signals.What are some of the most
popular? I've listed some of them in a handy
reference format below.
Many investors
make investment decisions — or would like
to — based on signals from their favourite
technical indicators.The biggest challenge,
however, is finding stocks that are giving the
signals that we're looking for.Suppose you like
to trade stocks that have recently exhibited
a "bullish MACD crossover" or a "bullish
Price Channel breakout," or some other
trading signal. Finding such stocks has traditionally
been a matter of checking a large number of
charts based on analyst reports, broker's recommendations,
hot tips, newspaper articles, unusual volume,
etc, etc. Finding stocks has been a matter of
luck and persistence, in most cases.
CURRENT
TRENDS — Learning to Use Buy and Sell
signals
The
following table provides a very useful, concise
overview of trading signals offered by some
of the more popular technical indicators.Please
remember, however, that an individual signal
should never be acted upon without considering
other indicators, as well as fundamental criteria
and market trends.A more comprehensive list
of technical indicators and their trading signals
is presented here.
Popular
Trading Signals
|
The table below lists some of the most popular indicators and signals.In
some cases, there are two sets of signals
described (e.g., MACD — signal line
crossovers & zero line crossovers).In
these cases, both are valid signals; however,
suitability varies based on different
circumstances and trading objectives.
|
| Indicator |
Signals |
| Av.
Directional Mvmt Index (ADX) |
Buy
when ADX crosses up through 25 |
|
|
when ADX crosses down through 20 |
| Commodity
channel index (CCI) |
Buy
when CCI has crossed below -100, formed
a bottom below -110, and then crossed
back up through -100. |
|
|
Sell
when CCI has crossed above +100, formed
a peak above +110, and then crossed back
down through +100. |
| Demand
index |
Buy
when +DI crosses up through -DI |
|
|
Sell
when +DI crosses down through -DI |
| MACD
Oscillator |
Buy
when MACD crosses up through Signal line |
|
|
Sell
when MACD crosses down through Signal
line |
|
|
Buy
when MACD crosses up through Zero line |
|
|
Sell
when MACD crosses down through Zero line |
| Moving
averages (MA, EMA) |
Buy
when 20 day MA crosses up through 100
day MA |
|
|
Sell
when 20 day MA crosses down through 100
day MA |
|
|
Buy
when Price crosses up through 100 day
MA |
|
|
Sell
when Price crosses down through 100 day
MA |
| Parabolic
indicator (SAR) |
Buy
when SAR switches from above Price to
below |
|
|
Sell
when SAR switches from below Price to
above |
| Price
channel (Donchian's) |
Buy
when the Price penetrates and closes above
the upper channel line |
|
|
Sell
when the Price penetrates and closes below
the bottom channel line |
Screening
stocks based on Price Channels
Based
on some research that was conducted a few years
ago on 23 trading systems, moving averages and
channel breakouts came out as the top performers.In
a 1990 issue of the Financial Review, Louis
Lukac suggested a channel breakout as the best
starting point for technical trading.
Given
the value of channels, I decided to screen all
the stocks in North America for those that exhibited
buy signals based on the Price Channel and MACD
Oscillator indictors, as shown in the table
above. (More specifically, I screened for stocks
where the Price had closed above the upper band
of the Price Channel in the past day and the
MACD oscillator had moved above its signal line
within the past 5 days.)
From 17,000
listings on the North American exchanges, the
program gave me a list of just 59 stocks —
in seconds.Here are the top ten results, sorted
by volume:
Let's take a look at
the 6-month daily chart for the top listing,
GILD (NASDAQ):
The very
first stock listed represents a winner, based
on my trading experience.
- The stock is
in a stable long-term uptrend; and has broken
upwards out of a period of congestion —
a profitable pattern, especially for mid-
to long-term investors.
- MACD is in positive
territory (above zero), and broke up through
its signal line a couple of days ago.This
is a sign of a strengthening move in the
direction of the uptrend.
- The price closed
above the upper band of the Price Channel
in the last trading session.Another bullish
sign.
Let's
take a look at the one-year chart and include
a couple of complimentary indicators this time;
a volume indicator (PVT) and Parabolic SAR:
Here we
can see that the Price Volume Trend is uptrending
and Parabolic SAR (green dots) is below the
price, which once again confirms the bullishness
of the other indicators.(I always like to refer
to at least one of the volume indicators —
OBV, PVT, Moneyflow, etc — because it
is complimentary to the other indicators based
on price).In addition, from past price performance,
we can see that the $60 level offered resistance
last Sept/Oct.If this stock continues to push
past $60 we would have strong confirmation that
GILD will be breaking new ground in the near
future.
In a matter
of a few minutes, I've uncovered a stock with
good upward potential using the power of a sophisticated
screening tool.This is just one simple search
based on a couple of indicators.I've also had
good results with a number of other indicators
and systems, including Wilder's system using
Directional Movement (ADX) and Parabolic SAR.
The benefits
of using trading signals for timing transactions
and uncovering stocks is becoming increasingly
recognized.At the same time, the tools available
are becoming more powerful, and now they're
finally becoming available to the average investor.
TIPS
& TECHNIQUES — Using this combination
of indicators
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Technical Analysis Article Index