I have owned a position in Direxion Small Cap Bear 3X ETF (TZA) for a little over a month now and figured today was a fine time to take some profit and get ready for whatever is to come next. This daily chart shows that the True Strength Index (TSI) indicator had reached the lofty level of 0.65 which I consider a sell signal.
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The other issue motivating my sale was the inverse negative divergence that was fairly predictable. Price yesterday made a higher intraday high than today while today's TSI reading was higher than yesterday's.
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Click on the chart to ENLARGE
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My TSI Trading record has been updated.
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good evening John,
ReplyDeleteI think you made some money on this one. Nice going. I've been meaning to ask at what level on the tsi you consider to be a sell. I guess 65 is a sell? Also, is dzz about to make a trendline break to the upside? M-
Good Morning Monty - yeah, I think I made about 9.8% on this trade. The nose bleed sell signal is not so much a definite level as it is a relative level. Different securities have varying levels of volatility. In the case of TZA I had to look back 12-13 months to find a reading higher than 0.65 and that told me that 'relatively speaking', 0.65 was unusually high and not likely to go a lot higher. Of course, it can go higher and with my luck, it probably will. But that is OK with me. I take my best shot at playing the probabilities and from there I just let whatever happens, happen.
ReplyDeleteDZZ does not look like a trend line break yet. Gold is due a pull back but I am starting to wonder if it will even be tradable (or worth trying to trade). I am very curious to see how the miners react now to gold's new all-time highs and the SP-500 on the verge of crashing.
Hi John,
ReplyDeleteHow do you use the Money Flow index? I have notice that you add them into your analyse (?)
Anon - thanks for the excellent question. The True Strength Index measures momentum. So I often try to cross check what it is telling me with an indicator that does NOT measure momentum. MoneyFlowIndex measures volume, so that qualifies as something different from momentum. Bollinger Bands measure volatility - another useful difference from momentum. There are times when there is a picture perfect trend line break on both the TSI and MFI. When that occurs the odds of a successful trade are just that much more favorable.
ReplyDeleteHi! Great site...thank you! Just a general question...wondering your thoughts on using TSI etc on options (puts/calls) instead of directly on the stock. Would you make any adjustments/modifications to parameters/confidence levels? Thanks again! Karney
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