One of the biggest mistakes I see investors make is focusing too much on capturing the turn-points at market bottoms and tops. Yes, we all love to nail the bottom to the day and sell at the exact top, but as a long-term wealth building strategy, it just doesn’t work. We’re much better off capturing the meat in the middle.
Today I’d like to share with you more about how you can leverage the SSI Trend indicator in TradeStops to help you master the middle.
The SSI Trend indicator was originally developed as a core component of the “Re-entry Rule” – the signal that tells us when it’s safe to get back into a stock that had been previously stopped out. We needed a trend indicator that help us distinguish good bounces off the bottom from bad ones. A “good” bounce is one that follows through to the upside. A “bad” bounce is one that fails and is soon followed by new lows.
I’ve shown the below chart before but it’s still one of my favorites.
It shows how the SSI Trend indicator helped us to know that the bounces in gold from 2013 – 2015 were not likely to have upside follow through. It wasn’t until the SSI Trend finally turned solidly up in early 2016 that the SSI system gave the all clear on gold.
The first thing to understand is that the SSI Trend indicator is unique to every individual stock and index in our database. It isn’t a “one-size fits all” moving average like the popular 200 day moving average or 50 day moving average.
Here’s a chart of the SSI Trend indicator on the S&P 500 to help show you what I’m talking about.
In this case, the two are not all that different (the current period on the SSI Trend for SPX is 182 days) but hopefully you can see how price has tended to bounce more consistently after touching the green SSI Trend as opposed to the 200 day SMA.
With the SSI Trend you don’t have to guess if you should be looking at a 50 day, 100 day or 200 day moving average. You don’t have to worry if you should be using a simple moving average, an exponential moving average or a weighted moving average. You know that with one trend indicator you’ve got the best shot of knowing where your favorite stocks and securities stand with respect to their trends.
As I mentioned above, the SSI Trend is currently one of the big components of the SSI Entry signal. If a stock was stopped out in the past then we look for 2 things before re-entering – a bounce greater than VQ% and a significant upward slope in the SSI Trend.
In addition to this important function, there are other ways that you can now leverage the SSI Trend tool in TradeStops as well.
Richard M. Smith, PhD
CEO & Founder, TradeStops