For the last 6 years or so I present monthly a 1 ½ hour discussion on stock and fund "Technical Analysis Using TC2005" in the Houston HAL-PC club SIG "Computer Investing". One of the most common questions from the 50-70 member audience has been: "What is the best buy, hold, and sell signal?" The answer, of course, is that there is no "best" such system; the selection of critical parameter will always be influenced by personal decisions involving degrees of risk taking, greed, experience etc. The following, therefore, is a discussion of some very personal approaches.
A well structured and low-risk buy, hold or sell action must be based on the evaluation of both long and short price trends. The long trend gives us the required maximum insurance that present price levels or price directions will/may persist at least into the near future; short price trend signals furnish us a specific buy/hold or sell signal. The basic demand is here merely that we follow the given signals; only too frequently this warning is not heeded with most often negative results.
The TC2005 system offers many excellent long-term and short-term price trend signals. Long-trend signals range from simple or exponential moving averages of price (over MA 20 or so) to longer stochastics (over stoc14 or so) and to RSI, MACD, TSV, MS or OBV. Short-term signals are short MAs (below MA10), short stochastics (10.4,4; 5.3,3; 2.2,2; 2.1,2 or so) and equivalent RSI, MACD, TSV and Directionals ("ADX"). And one can use these signals easily in TC2005 by sorting a given watch list or by using the Easyscan module.
My long-trend indicators include the Guppy (or Rainbow) Chart with its numerous price MAs from (exponential) 3 to 60, and stochastics 30.4,5 and 45.4,4. They all have to have an upward direction (lying above their own MAs). Stochastics longer than about 14 often lie above the 70 value line for a considerable length of time. As long as they do, the relation between the stochastics signal line and its MA is insignificant for trend definitions. I use this fact by a PCF formula as follows:
(Stoc45.4 > 70) or ((stoc45.4 < 70) and (stoc45.4 > avg(stoc45.4,4)))
OBV should be pointing upwards, and TSV17 must be above its MA3. In addition, price MA20 should be up for the last 2 days.
My short-term trend indicators are a series of short stochastics: Stoc10.4 (which is about parallel to an ADX signal) should lie above 50 and above its MA4; stoc5.3 should be above its MA3 and lower than about 55 for a buy point. Stoc2.2 and 2.1 should both be up, otherwise an immediate price drop most likely will occur. Stoc 2.2 is about parallel to a candlestick signal.
And do you know that the relation between price and MA11 or 12 is about parallel to the excellent Parabolics indicator? Price should lie above its MA11 or 12 to signal a buy or hold.
Each stochastics set has its own specific cycle (wave-) length; in fact, it is this cyclicity of the stochastics signals that gives them a certain specific prediction potential better than most other indicators: Stoc10.4 has a half-cycle length of up to 2-3 weeks. Stoc5.3 has a half-cycle length of about 8-10 days and a related price range of up to 15% or so (all depend on specific stock volatility). Stoc 2.2 has a half-cycle of about 3-5 days with a price range of up to 8% or so. The stochastic cycle length and these price ranges offer excellent ways to construct a personal strategy; I use stoc 5.3,3 quite frequently as my main buy and sell signal.
A good buy signal is given when
A good general ("last call!") sell signal is given when price dips below its MA20 (a warning will have been given by its MA11 already), and when the most critical of the short stochastics shown above dip below their MAs. Otherwise, when any one of the selected buy signals turns around, it then may become a good sell signal; however, one may consider shorter-term indicator settings for sell signals than for buy signals.
The combination of quick sorting, scanning (Easyscan) and watch list systems (enhanced by the sub-list routine allowing quick cross-checking of two watch lists) leads to the TC2005 being an excellent, practical, quick, accurate and cost-efficient system.
I have tested several other evaluation systems; and I found that TC2005 – Diamond is the very best for me for stock and fund trading and investing, both end-of-day and intra-day, thus long-and short-term. Just one request: Please, add a Parabolics indicator on the next system update; it is an easy-to-be-used and accurate visual help for buy, hold, and sell decisions.