What's your poison?

Friday, 27th November 2015 08:27 - by Moosh

With investors getting tips left, right, and centre from all over the place, how do you sort out which is worth looking into or not? Well, if you have digested the ‘Anatomy of a Trend’ blog post then you obviously want to be entering during stages 1 and/or 2, don’t you?

I understand that this may not be a particularly level playing field since I did mention that I use my in-house indicator – DC9 – to figure out when stage 1 will present itself – BUT, all is not lost. I do also look at regular technical indicators that are available to investors and one which sticks out prominently above all the others as potentially useful to identify a possible ‘ground zero’ during stage 1 might be when the relative strength index (RSI) - 14 period - dips below or closes below the 30 level (oversold). I have tested this in a few shares and there is often a good bounce from this level, but the bounce does require buyers at this level to buy-and-hold. That’s not a trick. The RSI oversold position will happen during stage 1 of a trend so in order to work the trend up to stages 3-4, then the buyers need to provide that support during stage 1 and need to consider themselves as buy-and-holders, and this is likely to take a few weeks to get from stage 1 to 4. However, you must also be aware of the longer term nature of the trend (weekly/monthly) when considering the RSI oversold position.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.

When the RSI oversold position next presents, consider the fundamentals of the company alongside any further news events at that point in time. If you still like the fundamentals at the RSI oversold position then considering a buy at this point may be appropriate. This would also be a useful entry point following a bullish cycle which you may have missed but would still like to have the opportunity to trade/invest in a possible ‘second wind’ rise alongside all those other investors who missed the previous uptrend.

So if you see any tips from bloggers/newspapers/brokers/PIs, then first and foremost - check the RSI (14 day) status. If the RSI is not oversold, then consider which stage the trend may be in. If the price hasn’t moved considerably and has yet to start making new 9 day highs, then the buy opportunity is still present, even when new 9 day highs are being made (during stage 2). As long as early birds are entering and holding during stages 1-2 then it basically forces the price to get into stage 3, especially when positive news events appear.