|The strategy, which I call the Lower Bottom strategy, picks out those stocks whose prices make a low, rise, and within a 24 day period make a lower low. The strategy has been remarkably successful, even in the recent down market. A portfolio I started on December 30th, using this strategy to choose shares, has given me a 5.21% return, even in the present downtrend. I have programmed Technifilter Plus to analyze the market and highlight those shares that meet my parameters. This reduces the number of shares I scan each morning to an average of five or six. As a modification, I filter I out those shares that have traded less than 50,000 the previous day so that I am assured of a market when I want to sell. My final decision also depends on the following volume strategy. |
Price Rise + Rising Volume = Strength
|Using volume with the lower low strategy.|
|Graphic provided by: AdvancedGET.|
|Because I am looking for long positions, I will look for a falling price with falling volume, which equals strength. As the share makes a lower bottom, volume should also fall. If volume rose as the price fell, I would tend to ignore the share. |
What does a chart show? For this example I have chosen Yamanah Gold Corp., because it has given a lower low as the price fell. On April 14, Yamanah made a low of $3.41, then rose to $4.01 and fell to a lower low on April 21st, at $3.25. The fall to $3.41 was on volume of 8684 (00) and the fall to $3.25 was on volume of 4791(00). Volume dropped approximately 44%, which suggests that the price is falling on falling volume, a sign of strength, and that the share price should reverse upwards. This it started to do, and could continue to rise.
|In an article in the May 2004 issue of Stocks and Commodities magazine, Tim Ord quantified the above volume strategy further. He wrote that when a price tests a previous low on an 8% or larger decrease in volume and closes back above the previous low, a reversal is implied. I used this figure I in my Technifilter Plus filter strategy. In his article Tim lists six rules, giving percentages that one can follow and apply to a move, to determine a stock's future movement. These percentages quantify a move, and can be incorporated into any trading strategy written in your program of choice. |
|My strategy now is to look for a low over the past 20 days, and to identify the volume of that low. Next I look for a low over the past four days that is lower than the first low, and identify the volume for that low. Then I identify a high point between the two lows and prepare a Fibonacci retracement level from the low to the high, as shown on the chart. I then highlight the share if the price of the second low is on an 8% or larger decrease in volume. I would buy the share if the price rises above either the first low or if I wish to be more cautious, above the 61.8% (0.618) Fibonacci level. |
Should any reader want a copy of the technifilter plus strategy, please email me and I will send you a copy.
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