I have to answer your question with a pre-amble. Sorry for the wordiness.
For the past year, I have been refining my scans and reached a point where I can expect "good" results from 3-5 scans.
I used a reverse process whereby I looked at hundreds of "successful oubreaks" and tried to look for underlying features in the RSI. The pre-outbreak RSI behavior is what I have since "distilled" into a screening methodology.
Once I screen, I get a lot of junk that I then pass through a secondary "visual" screen. The lot that makes it is then stored for a final tertiary, stricter screen whereby I look at the 3 then 1 year trend, the 6-to-3 month "interim" trend. This last step is as much a technical screen as it is visual and gut feeling.
I know it sounds like bragging, and I apologize sincerely for it, but I can now look at a chart and determine within 10-20 seconds whether it is a good play or not. I pass it through the other two steps for confirmation. Again, I hate to read about guys that claim to have "special TA skills" (especially when they really do - makes me envious), but this is nothing else than a result of reiterated reading charts over and over again - nothing different than becoming well versed at reading EKG, Kanji, or a sheet of music. You just get the "tone" right away. Never should one be 100% sure, nor utter, think or use such word as "prediction". This is TA: a chart either presents with a high or a low probability of going the expected direction. Period.
Once the stock passes the screens, I tag it in my private screen result list until I get a RSI confirmation (See: RSI’s Rule’s of Engagement in the public listing: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2140281 ). Sometimes, the stock shows a RSI that indicates an imminent outbreak, or sometimes, it lags. The waiting period is not as important as maintaining a “promising RSI”. Once it is confirmed per the RSI’s ROE, I follow the chart on a 5-day basis with on-going trend lines for early entry/exit signals or warnings.
Numerically, this translates to defining an RSI as follows: – RSI’s 14-MA > 45-MA AND – 14-RSI crosses 50 (for a very very early signal. This means HIGH sensitivity, which equates to LOW specificity. That is, you catch a lot of uptrending RSI (HIGH sensitive), but not all unfortunately meant it (LOW specificity) AND – RSI meets the reversal criteria (See: RSI’s ROE) AND – RSI has been on a slow rise about 1/3 of the covered period (I like to stick to a 3-month chart; so, rising for 3-4 weeks)
Overall, the key is to maintain early signals (high sensitivity) without getting too many false signals (low specificity). I tend to maintain a high sensitivity anyway, which gives me lots of false signals too. However, I counted that for every 10 favorable screened charts (i.e.: passed the first step), I end up with 2-3 stocks with favorable features. So, I manage the false signals by further passing the charts through screening steps 2 and 3. Since I get about 10-30 charts, it only takes me 5-10 minutes to sieve through and come up with “promising” ones.
As I mentioned above, my main determinant is RSI and its moving averages. On the third step, I add a standard slow stochastics (14, 3), or “STO”, and see where the extensions are in reference to the 14-RSI. STO is only valid to me in three ways, when referenced to the RSI, so I do not care as much about the “oversold” parameters, unless it interprets something about the RSI (I often say that whatever you see or feel, RSI rules the game here).
For instance, an “oversold” STO and RSI – watch for descending peak-to-peak STO features that heralds an impending fall in price. The converse is true to for an imminent rise.
Moreover, if the RSI looks “oversold”, a retracement of the STO towards 50 (its mid-line), then back up again above 50 is a strong indication that the RSI is not yet finished with its upper boundary stroll. Here again, the converse is true.
Other TA features I use are geometric formation such as triangles, provide a reliable chance that the underlying stock will go in the expected direction.
Among these triangles, I found that the ascending formation is more consistent in heralding an outbreak than the other kinds (descending, symmetrical, or open-ended). This is most likely due to the fact that it forms when buyers seem to "run" after an ever ascending price (rising side) against sellers determined to not sell at any lower price (Note here that a conservative TA person would look at the difference in base height to project a reliable target price).
Is this answering the question. Again, I apologize for the wordiness, but getting off tangent may sometimes answer question that would otherwise arise in the context. I hope I was helpful to you.
Sincerely,
David Alcindor
In response to Waycokid – IHub Member: “Hi Dalcindo, when you are screening what do you look for in your RSI and Stoch indicators. Do you ever use them to do stock scans? and if so what parameters do you use (eg. RSI moving above 60 etc.)” - 10 MAY 2007
News 
Market Data 
Discover 
AI
