The SPY/S&P 500 is in a great area for a swing long. The framework for this trade uses the Rate of Change indicator and the 7 period RSI. The recent strength in the SPY creates a backdrop for the weak RSI to trigger a long signal.
The rules are fairly simple. We ask that the 44 day ROC is greater than 5 and both the 88 and 196 period ROC be above 10%. If these conditions are in place we then ask the 7 period RSI to be below 45. We would enter the next day at the open. Those conditions triggered on the Wednesday close and triggered a long for the Thursday open (8/3/23). We had a bit of a gap up on Friday buy fell back towards the lows of the day. The exit criteria is a close above the high of 3 days prior as discussed in a previous post. If we get a bit of weakness towards the Friday lows I would suggest that the potential for profiting on this trade is even higher than the initial entry.
Let’s take a look at the past results of this methodology:
This condition has only triggered on 22 (23 if you consider the current open position) previous occasions. Although by lowering the ROC thresholds a bit the number of trades increase but the stats are very similar.
21 Winners with an average winner of 1.66%, which holds for an average of 5.52 daily bars.
2 Losers with the average loss of 1.03%, which holds for an average of 7 daily bars.
A list of previous trades:
Here is a visual of that last trigger we saw in May of 2021
Have a great weekend!
DJ