Friday, February 24, 2012

BUY/SOLD DUST - $28.65/$29.60

I've been watching a couple of different setups take shape on various stocks and when the 1 hour chart of Direxion's Gold Miner 3X Bear ETF (DUST) showed me what I was waiting for, I bought shares at $28.65.

It's particularly nice to find a setup where more than one TSI technique BUY signal is active. In this case, there were three - the trend line break, the positive divergence and the ZERO crossover. Additionally, I am gravitating towards finding trend line break BUY signals that are defined not by just two points that provide a slope that is subsequently broken, but three. In fact, I have come across trend line breaks that include four and even five points and the outcome of these setups is quite impressive.

This is the chart of DUST just after I made my purchase. The second chart was made just after i sold my position. I could see that DUST was not likely to make much if any progress before the close so I just took my money and passed the shares off to the next trader.

My TSI Trading record has been updated.

Click on any chart to ENLARGE


  1. John, I couldn't reproduce the divergence shown by the indicator Faz(7,4,5,1,EMA) as shown on your BUY chart when using FreeStockCharts and TSI.

    How can I duplicate the Faz indicator using FSC/TSI?

  2. That's interesting and I see exactly what you are talking about.
    That positive divergence does not show up in FSC on the DUST 60 min chart.
    It does, however, show up on the 30 minute chart - FSC.

    Well, I guess there is a slight difference in the math used by FSC and
    my concoction for TOS. The FAZ indicator now includes a feature allowing
    me to smooth, double smooth and triple smooth the TSI, but I see I had them
    all turned off when I made this chart.


    Anyway, this is the default code I am using for my TOS version of the TSI:

    declare lower;
    input long = 7;
    input short = 4;
    input signal = 5;
    input s = 5;
    input average = {SMA, default EMA, WMA};
    def diff = close - close[1];
    plot TSI;
    plot Signal1;
    def lastBar = if (IsNaN(close), 1, 0);

    switch (average) {
    case SMA:
    TSI = (Average(Average(diff, long), short)) / (Average(Average(AbsValue(diff), long), short)) * 100;
    Signal1 = Average(TSI, signal);
    case EMA:
    TSI = (ExpAverage(ExpAverage(ExpAverage(diff, long), short),s)) / (ExpAverage(ExpAverage(ExpAverage(AbsValue(diff), long), short),s)) * 100;
    Signal1 = ExpAverage(TSI, signal);
    case WMA:
    TSI = (wma(wma(diff, long), short)) / (wma(wma(AbsValue(diff), long), short)) * 100;
    Signal1 = wma(TSI, signal);

  3. From

    True Strength Index
    The True Strength Index (TSI) is a momentum-based indicator, developed by William Blau. The TSI is suitable for intraday time frames as well as long term trading and helps to define trend and oversold/overbought conditions.

    The formula for TSI is:
    TSI = ExpMovAvg(ExpMovAvg(NetChange, Long),Short) / ExpMovAvg(ExpMovAvg(AbsNetChange(n), Long),Short)

    Long = Long Period
    Short = Short Period
    NetChange = Price - Price 1 bar ago
    AbsNetChange = Absolute value of Price - Price 1 bar ago

  4. OK - I figured it out, but WOW, this kinda has me scratching my head.

    On any normal trading day FSC displays exactly 7 bars of 60 minute price data.

    TOS, on the other hand will include a 60 minute bar if any trades occur in the 'before or after' market. On some days I counted 9 - 60 minute bars, other days 10 - 60 minute bars, and on Thursday - the day TOS created this 'mysterious positive divergence' - it actually had 11 bars. TOS used hourly price data from 7 am, 8 am and 9 am that was not part of FSC hourly calculations which began with the 10 am bar.

    Obviously, if TOS is using different hourly data than FSC then the TSI calculated will not look the same.

    Hey, thanks for giving me an opportunity to learn something new today!

  5. Thanks, John - mystery solved! Trading the 30 minute FSC chart should be non-stop fun! JK!

  6. Nice trade ,John. More importantly a nice trade doesn't have to be profitable. Still remember your e-mini /ES trade you took a 20 points lose instead of holding on which would have turned into a 70 points loss. My question is how do you determine it's time to cut it and move on, a certain percentage of price move or TSI heading wrong way?

  7. The art of selling - tough question.

    I guess for starters it is objective for me to recognize that some of my results were/are luck - both good and bad.

    The ES contracts I sold at a healthy loss were winners just a matter of days later. Yet, as you point out, if I had held those contracts until now, a 20 point loss would have been a horrific 70 point loss. Bad luck I did not hold a few more days, good luck I did not continue to hold.

    At my best I tend to sell a bit too soon.

    LSG I bought at $1.47 and sold for $1.51 (+2.7%). In the past couple of days LSG has reached $1.70+ USSID I bought for $2.38 and sold for $2.40 (+0.8%) - but a couple days ago it reached $2.70. Clearly I sold both these way too soon.

    On the other side of things, I bought CGR at $1.41 and sold for $1.47 (+4.1%) and subsequently CGR fell to $1.26 and closed this week at $1.34. VALV was purchased at $1.18, sold at $1.24 (+5.1%) and then fell to 75 cents, while managing to close this past week at 87 cents.

    I did sell the large position I held in TVIX from $14.79 at $17.50 (+18.3%) but missed selling the first top at $21.10 and missed selling the second top at $20.69. Here I obviously sold 'too late' as opposed to 'too soon'.

    When I buy something it is almost always because of the TSI setup. I have a general notion in my head what I expect to happen thereafter but often find that if I have a nice gain I will be cautious and somewhat stingy about allowing it to turn into a loss - even if the TSI is not giving a sell signal.

    My point of view is that if I was right about buying in the first place, after selling - even if too soon - I will find something else and likely be correct again.

    There are 5,000+ stocks out there - more than enough to chose from. If one is confident of their ability to size up profitable trades, that person will always be able to find a promising setup.

    And concerning the stocks I sell prematurely: after I sell, I could honestly care less about how the stock continues to perform. I just move onto the next trade and if anything, the fact that I traded a winner just validates - to me - my ability to size up good opportunities, even if I am not successful in getting the highest penny for my trade.

    A final thing I would mention about selling is that moving averages play a surprisingly powerful role in how high or low a stock will traverse, at least in the short term. If you study the 50 and 200 not only on a daily chart, but also the 4 hour, 1 hour, and down to the 1 minute, you will see what I am saying. I am generally aware of these metrics when I buy and often use them to guestimate a selling price even before I enter the trade.

  8. hi John

    I have been useing the tsi on the DT pro platform. Thankyou for helping me get it loaded up. Mostly i Have been useing it at cycle time for a early entry =).
    I did have my finger on the trigger at 1543, but sadly did not pull it. MY broker follows gary ( at my initial request ). So we decided to avoid the D wave and was left standing. Well i did get in, although i am currently observing a divergence with a downturn on gld.
    My futures is simply showing a downturn. i was wondering if you would look at this, if there was anything to be seen

  9. Hi Jeff - my best advice is to follow Gary - do as he suggests.
    My second best advice is the same as my first best advice.
    And my third best advice is to recognize the favorable bull flag
    that gold has completed which, as a mid way resting point, projects
    gold to around the $1,900 level.

    Gold on both the daily and weekly time frames looks very strong to
    me - for a while longer. Kinda regarding my post above, I encourage you
    to not cry too much over spilled milk (missing the bottom of the 'A'-wave).
    A few people recognized it (not me) and that is now past. So what we do
    this week is all we have any control over. I wish you a pleasant experience
    this week and if your are long gold my hunch is that your experience will indeed
    be profitable, as well.

  10. Hi John,

    A question about your 40 bar cycle on the 4 hr chart:

    TOS throws in an extra 4 hr bar on Friday/Sunday. They have a Friday 4 hr bar that starts at 17:00 ET, but the market closes only 15 min into that bar. Then they have a NEW 4 hr bar that starts at 17:00 on Sunday, but the market doesn't open till 18:00. So I am counting those two bars as only one bar.

    When you did your research, did you count the Friday 17:00 bar and the Sunday 17:00 bar as two bars or as one?

  11. PC - I just counted each bar, 15 minutes or otherwise.
    As each 40 period 4 hour cycle has the same issue
    (1 or 2 - 15 minute 'four hour' bars) I cannot imagine it
    is statistically significant to either include or omit these
    bars in the count.

  12. thanks, John.

    Actually it's only one bar per week that is 15 minutes, the 17:00 bar that's on Friday.

    The 17:00 bar that's on Sunday is actually a 3 hour bar because the market doesn't begin trading till 18:00 and the next bar begins as 21:00.

    Bottom line is that TOS has 2 4 hour bars on the Friday thru Sunday time period that collectively amount to 3 hours and 15 minutes.

  13. John,

    I dont understand why you would suggest people to follow gary. Gary hasn't been exactly stellar-he has been flip flopping for the past 5 months and is still expecting a d wave bottom. Problem with cycles is that they do not tell you the direction of the trade nor the magnitude of the move... a cycle move can only be in time and garys own bias has done him harm. If any advice i can give to people is just hold long and strong.. don't trade in and out of this bull market as you will be left behind.

  14. Anon - well, I suggested a person who is a subscriber of Gary to follow/act on the advice Gary offers.
    I assume that person is a subscriber because he/she would like to make, and more importantly keep, the
    money from winning trades. Gary has a long track record of being able to beat the market consistently
    and not too many people or even professionals can make that claim. However, if a person has the ability
    to outperform Gary then I'm not sure why they are also a subscriber, but to that person I offer a sincere

    My own self-imposed research on the daily/weekly cycles of Gold over the past 11 years has not left me
    with the conclusion that cycles do not tell me the direction of the trade. I'd have to review my notes
    to be absolutely sure of this, but the first daily cycle of each weekly cycle was also right translated
    and the last daily cycle of each weekly cycle was left translated. The ratio of right to left translated
    daily cycles was 67% right translated, 33% left translated. There has never been a C-wave top that was not
    followed by a right translated weekly cycle. And on and on. My point is not to argue with you but to suggest
    that a person who studies this stuff and has the facts at his/her command, the odds of knowing direction,
    while never a certainty, are much better than a 50/50 coin flip.

    Finally, I agree with your idea to buy a bull market and just hold. I enjoy trading a few coins for the
    challenge of daily combat but my retirement accounts just buy and hold - and do quite nicely.