Strong and Weak signals

[adam ali]

Pascal,

A couple of questions in regard to your post above:

The idea of following a strong signal is to enter on a strong signal only, but follow the trade by looking at the weak signal: if the weak signal changes, then you close the trade. (Be aware that the signal is generated at the close of the indicated date. Hence, you enter at the open of the next day or at the close of the signal day).

I assume you're referring to the LT/ST edges when you refer to following the strength of a Robot signal. If that is correct, then one is to watch the evolution of the LT/ST edges daily and if those edges begin to weaken, the trader is to take appropriate action, i.e., close the trade, correct? Of course, the question remains how weak the signal needs to turn before initiating a closing trade, but I'll leave that question for the time being.

Finally, I can assure you that a strong signal is built and can be seen in advance - by monitoring the evolution of the LT/ST edges), while a weak signal is almost impossible to see without the robot.

If monitoring the evolution of the LT/ST edges can provide an indication of a strong signal, why isn't the reverse true? And this seems to contradict what is said above, i.e., by following the LT/ST edges for weakness, one can gauge when to close a trade.

[Pascal]

Pascal,

A couple of questions in regard to your post above:

The idea of following a strong signal is to enter on a strong signal only, but follow the trade by looking at the weak signal: if the weak signal changes, then you close the trade. (Be aware that the signal is generated at the close of the indicated date. Hence, you enter at the open of the next day or at the close of the signal day).

I assume you're referring to the LT/ST edges when you refer to following the strength of a Robot signal. If that is correct, then one is to watch the evolution of the LT/ST edges daily and if those edges begin to weaken, the trader is to take appropriate action, i.e., close the trade, correct? Of course, the question remains how weak the signal needs to turn before initiating a closing trade, but I'll leave that question for the time being.

Finally, I can assure you that a strong signal is built and can be seen in advance - by monitoring the evolution of the LT/ST edges), while a weak signal is almost impossible to see without the robot.

If monitoring the evolution of the LT/ST edges can provide an indication of a strong signal, why isn't the reverse true? And this seems to contradict what is said above, i.e., by following the LT/ST edges for weakness, one can gauge when to close a trade.

DO not make things more complex than they are in reality: on the Robot page, you will read "STRONG BUY" for example. This means that the probability for a profitable trade is much higher than usual. So you take the trade.
The robot will also take the trade. You then stay in the trade until the robot changes the signal and closes the trade.

Your question related to exiting a trade early when the edges are weakening is entirely linked to your trading strategy. Most of the money is made by "trend following". Trading in and out is against that idea. So I'd monitor the edges to have a feeling when a strong trade is about to come. I'd let the robot take me out.

If you look at the last two trades of IWM and GDX. Both trades could have been closed at a better price, but they were not. This is OK with me. When we have a signal, we do not know if the signal will take us for a 3 days or a 30 days ride. However, if we do not take the trade, we will no know, and if we exit after a few days because "we monitor the edges" then we might miss the next big move.

So, I prefer to take the trade and exit "on a wash", but at least I was in the trade in case of a long term trend.

One example: look at the IWM edges now: they are steadily trending up. We are in oversold and the 20DMF is about to issue a buy signal (tomorrow or in two days). I believe that this will be a strong signal. We know it is coming so let's be ready!

However, anticipating is not good. You can see that today, the market tried to bounce, but this is a failure (signal is more oversold). So, we might very well go lower tomorrow. However, market makers and GS friends will all move together and will bounce this market with strength when they are ready to do so. We will catch that move!


Pascal