Oversold in an Uptrend

This system uses Wilder’s Relative Strength Index (RSI) and volatility to detect oversold stocks in an uptrend and tries to buy at the bottom hoping to profit from the inevitable rebound.
To establish whether the stock is in an uptrend I used my custom Stiffness Indicator (see my article in the November 2018 issue of TASC) and a number of other conditions. In the following example below the system detected on the 9th of February 2018 that Adobe (ADBE) was oversold in an uptrend. As you can see  the stock was up more than 20% during the next 4 weeks


Overbought in a Downtrend

This system will detect overbought stocks in a downtrend and tries to go short at the top (hopefully) to profit from the reversion to the previous trend. In the following example below the system detected on the 1st of June 2017 that Sears (SHLD) was overbought in a downtrend and triggered a short signal.

As you can see the stock was down more than 16% during the next 18 days.
Both systems were designed for daily charts and are available for the Amibroker and Metastock platforms.



chart formation systems

Test Parameters

Test date: 5th of October 2018
Number of Stocks: 3000 (Russell 3000)
Commission : 1 cent per share
Trade amount per stock: $20,000 with no margin or compounding.
Initial capital: $150,000