We take a weight of the evidence approach, using the 6 input variables below
We want the PEG/PE/Forward PE all to be relatively low (IF this is the start of a 9 month run, we should see fundamentals align with this technical idea).
We also need a GROWTH story as part of this equation. Why will people continue to buy this product in the future? We want PEG to be below 1.
We want the Quarterly and monthly trends to be UP. EMA5/SMA10 Bull cross & price above a rising SMA50. We want the daily/weekly to be down. This divergence between the uptrend on the quarterly/monthly and the downtrend on the daily/weekly is the OPPORTUNITY we are looking for. Again, in line with the systems general goal: identify the completion of a subjective corrective pattern on the weekly time frames in a long term uptrend. IF price is about to go higher for the next 9 - 12 months, then momentum on the weekly needs to be close to the zero line. It can't already have peaked. Additionally, momentum will need to be NEAR the zero line if a large run is to begin.
We want to identify a subjective bottoming pattern on the chart. We want to see this pattern nearing completion. It should BE OBVIOUS. Triangles are a great example. H&S patterns, double bottoms/tops, etc... We want to see a breakout area, a trend line, or a gap, act as demand, volume confirm, and price accelerate higher. Ultimately creating a reversal candlestick combination on the daily/weekly. Some examples are Bullish Engulfing, Bullish Harami, Doji, etc...
You will feel like an idiot. You should feel like selling everything, despite your current positioning. The longer you play the game, the more this will just be called gut INSTINCT. The default behavior you have developed is to walk into a trap. It takes time to reprogram your gut to identify the trap in real-time.
Are the pair trades favoring equities or defensive assets?
SPY vs TLT | SPY vs. GLD | SPY vs. UUP.
What are they saying? Risk on? or Risk off?
Is the stock outperforming SPY?
Is the stock outperforming the ETF?
IF NOT, then don't buy. This ratio should be in a long term uptrend relative to the SP500 and the ETF it is a leader in.
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