Weekly Line Chart Divergences
Updated
Hello traders,
I am not a financial advisor. I am not telling you to trade any asset. I am simply sharing my ideas on how to use tools to implement my own investment strategy.
Here is a zoomed-out look you can use to come up with some of your own ideas on where the
SPX may go and how to manage your risk. Most of my core strategies are developed on the indices so I will have to implement them on individual tickers unless the comments are interesting.
This is a lagging indicator and should put me on the side of the trade that is *probably* likely to continue. By probably, I mean you need to do your own research and look at what the markets want to go and develop your own tools to work with the data.
Orientation:
Line Chart of ticker on weekly time frame
RSI using 12 periods (or weeks, in this case)
Signals can be marked using a vertical line or time-based axis marker. In this case, I am using 3 colors of lines, explained by the "Monday Action" legend. We will dive into more detail later on.
I also have EMA using ohlc4 on periods (or weeks) 10, 25, 50, 100, 200.
Now to the good stuff:
So for this application of the RSI and divergence, one can use a simple line chart on a weekly time frame (this chart is based on the closing price from what I can tell, but I was unable to confirm that with the Help Center. I was able to confirm by checking yesterday's close with current reading - it will be different after this post as the weekly close will come in today (writing before market close Friday morning)).
We can start at the March 2020 rally. We can see the March 23rd, 2020 weekly close paint a divergence
on the RSI. One can see the price close at a higher high when compared to March, 16th, 2020. The RSI values remain relatively flat: 17.95 to 18.04.
Find entry
One might conclude this is a time to buy. Because of the magnitude of the move DOWN, the move up was also shorted. One would have to employ the use of other tools in order to find entry in the following week. (Use the white anchored notes to see the explanations of thought process).
Find an entry in the next week. One can place orders on the weekend in "shotgun fashion" perhaps placing 50% order above current price and 50% below, or whatever method suits you.
Hedge Risk
The next yellow line is 08/24 - 31/2020.
The close indicates indecision in the market. Since this is the first divergence I would simply hedge the FANTASTIC long during the March 2020 buy. This can help to be determined from YELLOW vs RED using the 10 period moving-average of volume.
Use options or other means to protect one's long investments
Sell of Heavy Hedge
The next divergence is JAN 2021. This is the second one so I would probably sell at this point.
I would use my other tools to figure out what to do. Heavy hedging can be using derivatives or shorting your long positions.
Timing
A simple way to use this strategy might be to use the color's GREEN, YELLOW, RED, just like traffic lights. There will be deviations, and variations to the method, but if you back-test this you will probably find this works generally well.
Monday Action
Now I used the words Monday Action simply because that was the next possible day to make a decision. I can make my decision probably anytime within Friday if I feel comfortable with it. I can also place actions for Monday on the weekend.
Bottom Line
This week's close is very important. If we follow the green, yellow, red method from above, this very well can be a RED. It can also be another YELLOW. Volume is indicating something big, but we will see!
I am not a financial advisor. I am not telling you to trade any asset. I am simply sharing my ideas on how to use tools to implement my own investment strategy.
Here is a zoomed-out look you can use to come up with some of your own ideas on where the
SPX may go and how to manage your risk. Most of my core strategies are developed on the indices so I will have to implement them on individual tickers unless the comments are interesting.This is a lagging indicator and should put me on the side of the trade that is *probably* likely to continue. By probably, I mean you need to do your own research and look at what the markets want to go and develop your own tools to work with the data.
Orientation:
Line Chart of ticker on weekly time frame
RSI using 12 periods (or weeks, in this case)
Signals can be marked using a vertical line or time-based axis marker. In this case, I am using 3 colors of lines, explained by the "Monday Action" legend. We will dive into more detail later on.
I also have EMA using ohlc4 on periods (or weeks) 10, 25, 50, 100, 200.
Now to the good stuff:
- Divergences have been around for quite some time. Research about the RSI (Relative Strength Index) and it's roots
- It is much easier to see something that is larger, than smaller, thus we look at weekly time frames
- One can use volume, closing price and RSI to help manage one's risk
- Narrowing a decision to 3 choices can help alleviate indecision
So for this application of the RSI and divergence, one can use a simple line chart on a weekly time frame (this chart is based on the closing price from what I can tell, but I was unable to confirm that with the Help Center. I was able to confirm by checking yesterday's close with current reading - it will be different after this post as the weekly close will come in today (writing before market close Friday morning)).
We can start at the March 2020 rally. We can see the March 23rd, 2020 weekly close paint a divergence
on the RSI. One can see the price close at a higher high when compared to March, 16th, 2020. The RSI values remain relatively flat: 17.95 to 18.04.
Find entry
One might conclude this is a time to buy. Because of the magnitude of the move DOWN, the move up was also shorted. One would have to employ the use of other tools in order to find entry in the following week. (Use the white anchored notes to see the explanations of thought process).
Find an entry in the next week. One can place orders on the weekend in "shotgun fashion" perhaps placing 50% order above current price and 50% below, or whatever method suits you.
Hedge Risk
The next yellow line is 08/24 - 31/2020.
The close indicates indecision in the market. Since this is the first divergence I would simply hedge the FANTASTIC long during the March 2020 buy. This can help to be determined from YELLOW vs RED using the 10 period moving-average of volume.
Use options or other means to protect one's long investments
Sell of Heavy Hedge
The next divergence is JAN 2021. This is the second one so I would probably sell at this point.
I would use my other tools to figure out what to do. Heavy hedging can be using derivatives or shorting your long positions.
Timing
A simple way to use this strategy might be to use the color's GREEN, YELLOW, RED, just like traffic lights. There will be deviations, and variations to the method, but if you back-test this you will probably find this works generally well.
Monday Action
Now I used the words Monday Action simply because that was the next possible day to make a decision. I can make my decision probably anytime within Friday if I feel comfortable with it. I can also place actions for Monday on the weekend.
Bottom Line
This week's close is very important. If we follow the green, yellow, red method from above, this very well can be a RED. It can also be another YELLOW. Volume is indicating something big, but we will see!
Note
Disclosure of my position:SPY 230P DEC1721 LONG
SPY 325P DEC2321 LONG
SPY 467P DEC1721 LONG
SPY 466C DEC1721 LONG
SPY 489C DEC2321 LONG
SPY 530C DEC1721 LONG
Trade closed manually
in profit todayNote
4620.56 CLOSING PRICE. WILL UPDATE WITH CHARTTrade active
New position DEC2021 458P 
SPY cost basis .89Note
updated outlook of my actions for next week.
Trade closed manually
Closed +
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