[ScoopyJ]

I'm new to this site and pretty much trading in general. So far my main system of trading is by finding stocks that are in oversold territories both in slow stochastics and RSI. What are some experienced opinions in using the two combined oscillators for entry and exit points? What are some better "setups"?
thanks

[BlueHorseshoe]

Using the RSI as you describe can work well, but you'll need to use a much shorter lookback period or 'length' setting. Default settings demonstrate no edge. The Stochastics is less useful - stick with the RSI with a setting of around 4 (intraday), or even 2(swing trading), and then combine with a simple trend filter, such as only taking long entries when the RSI is oversold but above a 200 period moving average. Another useful indicator to consider for this type of strategy is the Commodity Channel Index.

I hope that's helpful to you . . .

[Obsidian]

I find rsi (bullish/bearish divergence) useful to find exit points

[ScoopyJ]

Originally Posted by BlueHorseshoe »

Using the RSI as you describe can work well, but you'll need to use a much shorter lookback period or 'length' setting. Default settings demonstrate no edge. The Stochastics is less useful - stick with the RSI with a setting of around 4 (intraday), or even 2(swing trading), and then combine with a simple trend filter, such as only taking long entries when the RSI is oversold but above a 200 period moving average. Another useful indicator to consider for this type of strategy is the Commodity Channel Index.

I hope that's helpful to you . . .

this was very helpful, thank you! the modified settings are looking good, im trying to focus on swing trades. What are the benefits of comparing the price to the 200D moving average?

[ScoopyJ]

Originally Posted by Obsidian »

I find rsi (bullish/bearish divergence) useful to find exit points

what settings do you use for them?

[BlueHorseshoe]

Originally Posted by ScoopyJ »

this was very helpful, thank you! the modified settings are looking good, im trying to focus on swing trades. What are the benefits of comparing the price to the 200D moving average?

Glad that was useful to you. It's reassuring to hear that you're intending using this method for swing trading. Though this kind of strategy can be profitable intraday, you're on a lot less steady ground!

The purpose of the 200SMA is to provide a simple definition of the longer term trend. When the trend is up, and price is trading above the 200SMA, then when a pullback generates an oversold reading from the RSI this signals a long entry. So long entries are only taken above the SMA and short entries below.

This simple filter is remarkably effective. The 200 period MA is just suggested as a broad way of diferentiating between bull and bear markets, and by no means will it be optimal for every market. Trading the S&P500 index over the past ten years, for example, a 170SMA would have provided the best results. However, there are many pitfalls associated with over-optimisation of parameters and the curve-fitting of system variables to specific data sets that you should be wary of.

Someone else has posted regarding using the RSI for exits - this is an excellent suggestion, as it will provide a stop loss that adapts to changing market conditions.

[ScoopyJ]

Originally Posted by BlueHorseshoe »

Glad that was useful to you. It's reassuring to hear that you're intending using this method for swing trading. Though this kind of strategy can be profitable intraday, you're on a lot less steady ground!

The purpose of the 200SMA is to provide a simple definition of the longer term trend. When the trend is up, and price is trading above the 200SMA, then when a pullback generates an oversold reading from the RSI this signals a long entry. So long entries are only taken above the SMA and short entries below.

This simple filter is remarkably effective. The 200 period MA is just suggested as a broad way of diferentiating between bull and bear markets, and by no means will it be optimal for every market. Trading the S&P500 index over the past ten years, for example, a 170SMA would have provided the best results. However, there are many pitfalls associated with over-optimisation of parameters and the curve-fitting of system variables to specific data sets that you should be wary of.

Someone else has posted regarding using the RSI for exits - this is an excellent suggestion, as it will provide a stop loss that adapts to changing market conditions.

Cool stuff, thanks! I'm interested in intraday trading but im actually still in high school right now so thats out of the question for a while
What settings would you suggest for swing trades with a range of about 2-6 days, so that i wont be on "a lot less steady ground" ??

[Obsidian]

I think every instrument has its own characteristics so it is better to try different values and see what works best...