One of my favorite indicators for short-term trading as well as longer-term investing is the 8 open/close relationship. As I have explained it in previous postings the concept and the coding are incredibly simple. We are looking at two moving averages eight SMA close versus eight SMA open. The concept makes sense logically because in a rising market there is pressure to the upside by buyers, therefore, causing the close to be greater than the open in most cases. The reverse holds true on the downside. Clearly, this is not a 100% relationship but it is a significant tendency. Given this tendency, we can help identify trend changes when they happen and in many cases before they happen. As the balance of power changes from bears to bulls, the difference between the eight close and the eight open becomes smaller and the channel therefore narrows. As the balance of power changes from bulls to bears the channel narrows and the trend changes. I have illustrated this narrowing tendency in the accompanying chart. The key, as I have stated earlier in postings, is to determine a profit target. Once the first target has been hit we take action to reduce our risk effectively to zero with trailing stops. Let me know if this is concept is making a positive difference for you in which case I will continue to share my trading experience and indicator usage with anyone who has an interest. No guarantees. Just simplicity. Just logic. Just a little bit of thought but not too much!
Jake RBT
Jake RBT