please suggest your best strategies to handle securities in a trading range.

floyd711

I'm attaching a weekly chart of EEM (ishares emerging markets index etf).

I picked an intermediate crossover signal like EMA-40 and EMA-10 (weekly chart) to avoid a lot of trading in and out of the security.

In hindsight, we know this is in a trading range. However, we don't know that in early 2011.

So, my question is "IF WE ARE USING A TREND BASED MODEL like using a MA crossover to determine entry and exit" how do we reduce our ability to reduce the constant lag as shown by my arrow points.

The reason I say "trend based model" is because one can easily look at this chart and suggest a RSI/MFI analysis to check overbought/oversold conditions. But this opinion is with the benefit of hindsight.

Thanks.

markd

If a trend is going to remain in place, then it should cross the prior high pretty easily, and then on the reaction not go very far below the high it just crossed. If it does get below the prior high, it should cross it again on the next attempt or enter a range.

See how EEM behaved 1997 - 2003. In 2001, it broke the 1997 high, then couldn't get back above it in 2002. Then look at the high in 2004. It crossed the 2000 high, tested it and went on.

In 2008, EEM broke the 2006 high, then rallied back above, tested it and went on.

But the 2011 break below the 2010 high was followed by a rally that couldn't get back above the 2010 high and stay there. That was the clue for a range.

So, the strategy would be, wait for the break above a prior high, then the reaction, then, if the reaction respects the prior high, enter long above the breakout high. In this case, it would make sense to wait for a breakout above the 2008 high.

ccardea

You should read Bruce Frazier's blog on Wychoff analysis to get a better understanding of trading ranges.

ccardea

You should read Bruce Frazier's blog on Wychoff analysis to get a better understanding of trading ranges.